Light Rail Schemes

Lord Wallace of Saltaire: asked Her Majesty's Government:
	Whether they anticipate that current and future proposals for urban rail-borne transport will meet government cost-effectiveness criteria for approval.

Lord Davies of Oldham: My Lords, before I answer this Question, I am sure that the whole House will want to join me in congratulating the noble Lord, who, this evening, is attending the French Embassy to receive the Chevalier de la Légion d'Honneur.
	It is for the promoters of such schemes to undertake the appraisals of costs and benefits in a fully costed business case. The appraisal is used to assess value for money. The Department for Transport issued guidance last year to help promoters understand the requirements. Schemes generally need to show benefits of at least one and a half times their costs to be approved, although value for money is not the sole criterion.

Lord Wallace of Saltaire: My Lords, I thank the Minister for that technical answer. My interest is of course mainly in the turning down of the Leeds scheme, although I understand that three schemes have been turned down within the past few months and that value for money on the criteria given for all those schemes—south Hampshire, Liverpool and Leeds—was high. The cost overruns of some motorway improvement schemes have been much higher than the proposed cost overruns on any of those schemes. It looks to those of us who have followed these debates as if the Government have decided that they are not in favour of any further light rail schemes in this country and that bus will do. If that is now the Government's position, will they explain that clearly and honestly to metropolitan electors?

Lord Davies of Oldham: My Lords, that is not the Government's position. If local promoters produce schemes that offer value for money and bring the additional benefits which light rail can often do, of course we will consider such schemes favourably. The noble Lord will know that recent cost increases for a number of light rail schemes have been enormous. Whereas with other transport systems, there is often no alternative, light rail often has the alternative of the bus. On occasion, the huge costs of light rail mean that we have to turn schemes down.

Lord Hanningfield: My Lords, the Minister said in his Answer that value for money would not be the only reason why a scheme was turned down. Considering my county of Essex, where we have the Thames Gateway, Stansted Airport and other developments, surely environmental reasons may make light rail the only solution for transport in some of those areas. Those schemes may have to be subsidised. Is the Minister ruling that out totally?

Lord Davies of Oldham: Certainly not, my Lords, I was very careful in my Answer to keep such options open. Schemes may well come forward that we can approve, but the House will recognise that the costs of light rail schemes have increased massively: 40 per cent, in one case; several hundred per cent in another. That causes us to think again about certain light rail schemes, but we are not against the principle. The House will recognise that light rail can bring additional environmental benefits in some cases but that they may not be enough to outweigh the severe cost rises involved in several recent cases.

Lord Berkeley: My Lords, does my noble friend agree that much of the high increase in the cost of light rail is caused by the utilities, which demand that all their services under the tracks be moved before track goes down? Does he further agree that an ultra-light rail system where the track is embedded in the road without moving the services would be much cheaper and more cost-effective? Will the Government support trials of that system?

Lord Davies of Oldham: My Lords, that is an interesting proposal because it gets past the obvious problem with light rail that all other utility services must be protected and, in many cases, moved from the road on which the system is laid down. But we have only received specific schemes for light rail of the other kind.

Lord Bradshaw: My Lords, will the Minister confirm that in the United Kingdom the cost of moving utility services is huge because the utilities companies bring forward all their maintenance requirements and load them on to the schemes? In this country, 90 per cent of that cost must be met by the light-rail scheme, whereas in Europe as little as 30 per cent is loaded on to light rail schemes. That is the reason that they are so uneconomical.

Lord Davies of Oldham: My Lords, the noble Lord certainly has a point. There are substantial costs attached to the redirection of utilities, but someone must meet them. Part of our problem is that our utility systems often date back a considerable time in the city centres where light rail is overwhelmingly concentrated. That is why those costs can be significant.

Lord Snape: My Lords, will the Minister reply to the point made by the noble Lord, Lord Wallace, that cost overruns on motorways and trunk roads are evidently more acceptable than similar overruns on light rail systems? Would he like to set out in the Official Report for everyone's benefit details of the last half dozen road schemes and tell us why such cost overruns on trunk roads and motorways are acceptable while similar ones on light rail are not?

Lord Davies of Oldham: My Lords, I am eager to give my noble friend and the whole House as much information as possible but he will not mind my including road schemes that have been rejected because they were too expensive. The department must take value for money into account. A very sophisticated cost-benefit analysis is introduced with all those schemes. My noble friend can have the additional information by all means, but it may not confirm everything that he appears to contend.

Lord Shutt of Greetland: My Lords, I heard the words on costs. There are eight light rail schemes in this country. Would it not be sensible for those promoting such schemes and the Government to look at other parts of the world? Let us look at Germany, where there are 77 light rail schemes, 10 of which are more than 100 kilometres long. Can something not be learnt from other places?

Lord Davies of Oldham: My Lords, that is for the promoters to organise, and they may learn a great deal. We have considerable experience of those schemes. We are concerned to give promoters a chance. There are funds that they can tap into to improve the quality of their research and the bid that they promote.

Johnson's Dictionary: 250th Anniversary

Lord Young of Norwood Green: asked Her Majesty's Government:
	What plans they have to mark the 250th anniversary of the publication of Samuel Johnson's Dictionary of the English Language in 1755.

Lord Evans of Temple Guiting: My Lords, the 250th anniversary of the publication of Dr Johnson's dictionary has been marked with the issue of a new 50p coin. In addition, there have been celebrations up and down Britain in universities and libraries.

Lord Young of Norwood Green: My Lords, I thank my noble friend for his response, which is ironically appropriate given his former occupation as a publisher. After all, it was a group of publishers who offered Dr Johnson the princely sum of £1,575, payable in instalments, to undertake the task. I confess that the Question was tabled in part as a device to ensure an honourable mention of a great Englishman who has left a lasting legacy to his country. It is appropriate that we pay tribute to him in this House—

Noble Lords: Question!

Lord Young of Norwood Green: I am coming to that. Some 15 years before he worked on the dictionary, Dr Johnson was employed by Edward Cave, the publisher of The Gentleman's Magazine, to prepare summaries of parliamentary debates. An example of this is on display in the Salisbury Room.

Noble Lords: Question!

Lord Young of Norwood Green: I am definitely coming to my question now. In 2009, we shall celebrate the tercentenary of Dr Johnson's birth. I hope that the Government will mark the occasion and support the Johnson Society in its request for a stamp to commemorate a truly remarkable man.

Lord Evans of Temple Guiting: My Lords, as my noble friend says, Samuel Johnson was one of England's greatest literary figures. I shall pass my noble friend's suggestion on to the DCMS. He mentioned my previous life as a publisher. Perhaps I may give just one quotation. Dr Johnson was very slow at writing books. The poet Charles Churchill wrote of him that,
	"He for subscribers baits his hook - and takes your cash, but where's the book?".

Lord Clement-Jones: My Lords, of course Samuel Johnson was a great man, although he was a Conservative. But should we not mark his anniversary by tackling new Labour jargon? Any number of such phrases is used in government. I mention "earned autonomy", "market testing" and "payment by results". The Health Secretary herself in a recent press release used the phrase, "high impact human resource changes". We also have the dreaded "M" word, "modernisation". Is it not time to banish all these from usage in government and use plain English instead?

Lord Evans of Temple Guiting: My Lords, what we have just heard is Lib Dem "pie in the sky". I agree with the noble Lord about certain phrases; "stakeholder" is a word I loathe but it does not appear in Dr Johnson's dictionary. Over the weekend I talked with Seamus Heaney about Dr Johnson. He was surprised that the Government would wish to be closely associated with him because, as Mr Heaney reminded me, Dr Johnson's dictionary defines "Tory" as,
	"One who adheres to the ancient constitution of the state and the apostolical hierarchy of the Church of England".
	The term "Whig" is dismissed in five words as,
	"the name of a faction".

Lord Quirk: My Lords, in addition to the celebrations the Minister has mentioned, is he aware that there was a pious delegation from Pearson Longman in Harlow to Dr Johnson's house in Gough Square on the precise day of publication to celebrate it? Indeed, should we not also be celebrating on this occasion the house of Longman itself? Not only did it publish Johnson in 1755, but a century later published Roget's Thesaurus and today remains at the cutting edge of English lexicography. I speak as chairman of Longman's academic advisers.

Lord Evans of Temple Guiting: My Lords, clearly it is easier to make statements about Samuel Johnson than it is to ask questions. I am happy to acknowledge the role of the great publishing house, Longman. I did not hear about the pilgrimage from Harlow. That is bad luck but I am delighted that it took place.

The Lord Bishop of Oxford: My Lords, in view of the remarks from the Liberal Front Bench about Dr Johnson's political views, does the Minister agree that it would be very dangerous to stereotype Johnson as belonging to any one political party? After all, one of his favourite toasts with a glass of wine was,
	"Here's to the next insurrection . . . in the West Indies".
	In view of the fact that at the time France was using a team of some 30 to 40 people over 30 to 40 years to produce a similar dictionary, does the Minister agree that that might be something which the noble Lord, Lord Wallace of Saltaire, might bear in mind when he receives his French honour?

Lord Evans of Temple Guiting: My Lords, I am grateful to the right reverend Prelate for those comments. Of course Samuel Johnson had political prejudices, none more so than against the Scots. What he said and wrote about the Scots and Scotsmen was really quite appalling, but every genius has his flaws. I agree with the right reverend Prelate that he was an absolutely brilliant man. He had political views but probably it was the construction of the sentences to deliver those political views that was the main thing for him.

Lord Giddens: My Lords—

Lord Renton: My Lords, was not Samuel Johnson's dictionary the foundation of English becoming the principal international language? It will not remain so if we keep adding to it unnecessary or meaningless phrases, which even the Government often accept these days.

Lord Evans of Temple Guiting: Thank you for that. My Lords, perhaps I may finish with a joke from Samuel Johnson. A Lincolnshire lady showed to him a grotto that she had been making in her garden. "Would it not be a pretty cool habitation in the summer?" she asked. Mr Johnson replied, "I think it would, madam—for a toad".

Lord Giddens: My Lords, may I still speak?

Lord Rooker: My Lords, we must move on to the next Question.

US Prisons in the EU

Lord Lamont of Lerwick: asked Her Majesty's Government:
	When the European Union expects to complete its inquiry into whether United States prisons for interrogating those suspected of being involved in terrorism have been established within the territory of the European Union.

Lord Triesman: My Lords, the primary responsibility for investigating these allegations lies with national governments and with the Council of Europe in so far as the European Convention on Human Rights is concerned. The Secretary General of the Council of Europe has asked for information from member states on this issue by 21 February. In response to a request for clarification from the European Union, the United States Secretary of State made a detailed public statement on 5 December.

Lord Lamont of Lerwick: My Lords, I thank the Minister for that reply. Perhaps I may ask him a question which the Prime Minister appeared to want to avoid answering. What is the legitimate purpose of so-called rendition—moving prisoners from one country to another, or, in one acknowledged case, moving a person from a prison in the continent of Europe to Afghanistan? Secondly, if, as the Prime Minister emphasised, America is dead set against torture, why did Vice-President Cheney ask American Senators to vote against the McCain amendment banning torture?

Lord Triesman: My Lords, were Vice-President Cheney here to answer for his views, I have no doubt that the question would be more relevantly asked of him. There has now been acceptance by the administration that it is desirable to clarify the matter by adopting that amendment. My own view—not the Vice-President's but my view—is that that is helpful. "Rendition" is, of course, a word which is used to describe a variety of things. There are cases where prisoners are transferred legally—under legal and proper schemes—between countries. Two examples have been used to illustrate the point most recently but, in the interests of time, I shall use just one. The rendition, if you want to call it that, of Carlos the Jackal at the request of the French Government was one such movement of an international criminal and terrorist who faced justice, trial and conviction in France. He made the claim to the European Commission on Human Rights that it was an unlawful thing to do, but the commission found that it was perfectly lawful.

Lord Tomlinson: My Lords, I thank my noble friend for acknowledging the role that the Council of Europe plays in this regard. As a member of the Legal Affairs Committee of the Council of Europe on your Lordships' behalf, perhaps I may say that we are deeply disturbed at the failure of EUROCONTROL to give any indication in response to inquiries about the patterns of flights that it has been asked to account for. It is all very well the member states giving their responses to the Secretary General, but can my noble friend assure us that pressure will be brought on EUROCONTROL? At the moment it seems to be controlling itself and not to be subject to any international direction.

Lord Triesman: My Lords, I would hope that by 21 February all the relevant information would be available. May I say, though, that it is potentially a leap of imagination to suggest that the flights necessarily mean that people were improperly held on them? There is no such evidence. If there is such evidence it should be brought forward.

Lord Wallace of Saltaire: My Lords, on the British involvement, we know that a number of the suspected flights have refuelled in this country. These are all covered by US/UK agreements, signed and negotiated either during or immediately after the Second World War and renewed every 10 years, in almost all cases without parliamentary debate. Can the Government give an assurance that next time the US/UK agreements come to be renewed, they will receive proper parliamentary scrutiny in both Houses?

Lord Triesman: My Lords, I am not sure that I am in a position to give that undertaking, but I can certainly see the merit of the argument and I will pursue it.

Lord Forsyth of Drumlean: My Lords, can the Minister confirm how many flights have actually landed in British airports? Can he explain the confusion there seems to be about the numbers which have been given by the Government and those which are being recorded by planespotters and others?

Lord Triesman: My Lords, to the best of my information, approximately 400 flights have landed in the United Kingdom. I am afraid that I can give no information whatever on the basis of collection of data by planespotters. Without being frivolous about planespotting—there may be many adherents in your Lordships' House for all I know—it is an activity with which I am wholly unfamiliar.

Baroness D'Souza: My Lords, have there been any discussions or meetings in the past three years between the European Union and the USA on the procedure of extraordinary rendition and the need for greater collaboration between the European Union and the USA? If there have been meetings, are there any minutes of them?

Lord Triesman: My Lords, I think there are routine discussions between officials in the United States, individual countries and the European Union. It is in the course of clarifying the content of some of those discussions that Condoleezza Rice made the point that the United States is bound by the rule of law, that it does not subscribe to torture and that it does not send people to places to be tortured. She made those statements in very plain terms. I think that we were right to welcome those statements, irrespective of whether minutes are kept. I am not aware of there being minutes of those informal discussions.

Lord Howell of Guildford: My Lords, the Minister mentioned 400 flights. Over what period did they take place? The former American Secretary of State, Colin Powell, said yesterday that these things have been going on for a very long time. Is it correct that they have been going on since the Second World War? Can the Minister explain whether this is a recent development or whether it has been going on for years?

Lord Triesman: My Lords, I emphasise that the figure is an estimate. My understanding is that these flights have been going on for a very long time. The most recent discussion has been with regard to what has happened since 1997—since the general election of that year. Information on that and on the precise arrangements that have existed since the beginning of the presidency of President Bush was provided in the other place.

Lord Elton: My Lords, on a slightly different tack, perhaps after Starred Questions the Minister would have a word with the noble Lord, Lord Young of Norwood Green, and look up the word "rendition" in Johnson's dictionary, where I am sure it has a totally different meaning to that which has been given this afternoon.

Lord Triesman: That would be fun, my Lords.

Home Information Packs

Lord Phillips of Sudbury: asked Her Majesty's Government:
	Whether they will reconsider the viability of the start date of 1 June 2007 for the compulsory national home information pack scheme.

Baroness Andrews: My Lords, having listened to views from across the industry, the Government are satisfied that 1 June 2007 provides the time needed to ensure that home information packs can be introduced smoothly and successfully throughout England and Wales and deliver real improvements for consumers. Since the announcement of the date, all the main industry representative bodies have confirmed their willingness to work closely with the Government to make this happen.

Lord Phillips of Sudbury: My Lords, I am grateful for that reply. This is the biggest revolution in the transfer of property since the Law of Property Act 1925, and there are many continuing anxieties about the practicality and cost of the scheme. Can the Government be confident of rolling out the national scheme on a compulsory basis in less than a year and a half, when there is only a voluntary nationwide scheme? Will they revert to the position they recommended as recently as November last year, when we debated the Bill, and have a designated area in which there will be a concentrated effort to get maximum involvement in a pilot that will show real results and not, as I fear, biased ones, under the present pilot?

Baroness Andrews: My Lords, the noble Lord is quite right. It is a major change in buying and selling houses and there is a good reason for it: to replace a system which is chaotic, brings great stress and costs a lot of money—£1 million a day is wasted in failed transactions. We have 18 months before the scheme is introduced in June 2007 and we are confident that we can meet the date. We are unable to conduct a designated pilot scheme because when we looked at how that might be done and consulted widely with the industry, we identified methodological problems in ascertaining how representative any region could be. We identified practical problems in running dual systems and the costs which would be involved. For example, somebody who was buying outside a designated area would have to pay for a home information pack and then for the normal procedures in another area. The system would be liable to lead to confusion. Instead, we are testing the scheme by way of a dry run. It will test every part of the process: certification and the information available to lenders during the 18-month period. It will be iterative and help us to learn, thereby ensuring that, by June 2007, we will have the scheme up and ready to go.

The Earl of Caithness: My Lords, why was there not a 12-week period for consultation on the draft regulations, but only a nine-week period? When did the dry run start? Why was Parliament not told that it was starting?

Baroness Andrews: My Lords, perhaps I may answer the second question first. The dry run has been an evolutionary process. That a number of providers already supply home information packs voluntarily has constituted the start of the dry run. There is an appetite to be involved in the scheme, and it is good to see the club of providers growing. When we move to test the scheme with a larger number of people in January, we will proceed in staged way throughout the next 18 months. I shall be delighted to write to the noble Lord and tell him how we are going to do that. Given the time scales to which we were working in terms of regulations, the 12-week consultation period is what we were able to agree with the industry. I shall write to the noble Lord with further details about that.

Lord Dubs: My Lords, will my noble friend confirm that the scheme has a valuable feature in that a statutory complaints system is incorporated in it? Will she therefore agree that it is even more urgent that the Government should introduce legislation for a complaints scheme about all aspects of house purchasing, including the behaviour of estate agents, so that aggrieved persons have a way of having their complaints dealt with?

Baroness Andrews: My Lords, my noble friend is quite right. One of the great virtues of the scheme is that a complaints system for buyers and sellers will be built into the certification process. The details of that are being worked out now. I am sure that I shall be able to come back to the House with details in due course. My noble friend is right that there will be implications for estate agents' redress schemes. I know that my noble friend has a keen interest in that. That matter is also of interest to the Department of Trade and Industry.

Baroness Scott of Needham Market: My Lords, does the Minister accept that the fact that only 1,800 surveyors have come forward from an estimated requirement of 7,300 surveyors is causing great concern? Does she agree that the small number of people coming forward and the doubts about their ability to carry out effective and accurate surveys is leading house buyers to be concerned about their prospects and the redress available to them if their survey is discovered to be faulty?

Baroness Andrews: My Lords, increasing numbers of people are coming forward. One thousand seven hundred and fifty people have been trained or are in training. Since we announced the date of commencement, we have seen a further surge in numbers. The Royal Institution of Chartered Surveyors will be setting up an assessment scheme. I am sure that surveyors will come forward in increasing numbers as the scheme unfolds.
	The noble Baroness asked about trust and reliability. Home inspectors will be fully qualified and certified. They will be on a public register. They will go through a robust qualification process in which everyone can have confidence.

Baroness Hanham: My Lords, how many of these 1,800 inspectors are already chartered surveyors? Chartered surveyors are presumably already meant to know how to survey houses, so why are they being put through a lower-grade exercise to train them to do something they already do? How many people have come from the outside the profession of chartered surveyors to put themselves forward to be home inspectors, and how many are chartered surveyors—who should not, by all accounts, be being retrained?

Baroness Andrews: My Lords, I cannot give the noble Baroness the figure that she wants on chartered surveyors, but I shall see whether I can get it for her. The noble Baroness asked about this qualification in relation to the qualifications held by chartered surveyors. Chartered surveyors do many things outside home inspection; there are many new aspects to the qualification—for example, a rating system on the home condition and an energy certificate. Those are new qualifications. The qualification will be equivalent to NVQ4, which is a very serious qualification, and for chartered surveyors it will be added value. Many people will come and qualify for the first time in this new profession, and they will have to have a home condition qualification—a course and a certificate—that will passport them through to assessment. I am sure that at the end of the process they will be equally well qualified, through examination, and buyers and sellers can look forward with confidence to that.

Business

Lord Grocott: My Lords, with the leave of the House, a Statement will be repeated this afternoon on the European Council of 15 to 16 December by my noble friend the Leader of the House. We shall take it immediately after the Consolidated Fund Bill. I remind the House that the business of the Consolidated Fund Bill will follow immediately after the remaining Committee stage of the Identity Cards Bill and will be extremely brief—at least, I hope that it will be brief. Therefore, noble Lords who want to hear the Statement will have to be ready pretty sharply after the end of the Committee stage of the Identity Cards Bill.

National Insurance Contributions Bill

Brought from the Commons; read a first time, and ordered to be printed.

Identity Cards Bill

Baroness Scotland of Asthal: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved accordingly, and, on Question, Motion agreed to.
	House in Committee accordingly.
	[The CHAIRMAN OF COMMITTEES in the Chair.]
	Clause 24 [Appointment of National Identity Scheme Commissioner]:
	[Amendment No. 220 not moved.]

Baroness Anelay of St Johns: moved Amendment No. 221:
	Page 21, line 26, after "it;" insert—
	"( ) the arrangements for ensuring the accuracy and integrity of the information about individuals held on the Register;"

Baroness Anelay of St Johns: My noble friend Lord Northesk has asked me to move his Amendment No. 221. In moving that amendment I shall speak to the other amendments in this very large group. I agreed to such an aggressive grouping in order to be able to have a wide debate on the powers of the commissioner. However, especially after what the Chief Whip has just told us, I am conscious of the significant amount of business ahead of this Chamber. Members involved in this Committee stage went on until half past midnight last week—I have no intention of forcing other noble Lords to be in the same position today.
	This group of amendments directs our attention to the vital importance of independent oversight of the ID cards scheme. It is important to examine the role and powers of the national identity scheme commissioner and to examine his role in the preparation of his reports on carrying out his functions. We do not accept that the creation of the register as set out in the Bill has so far been justified by the Government, but we are pleased that a national identity scheme commissioner will be appointed under Clause 24. In the draft Bill, the commissioner was restricted to a single power, reviewing the use of powers of disclosure without consent. That role was broadened slightly when the earlier Bill was published, and it has been extended again in the new Bill—but it is still far short of an independent, robust review of the scheme's operation that we should like to see. The commissioner is powerless in relation to the areas that he has to review and has no power to change anything that he finds unsatisfactory. Amendment No. 221 adds a requirement to keep under review the accuracy and integrity of the information held on the register to the functions of the national identity scheme commissioner. As our debates in Committee have already indicated, these are especially important aspects of the scheme, and I hope the Government will feel sympathetic to this uncontroversial proposal.
	I tabled Amendment No. 223 in response to the recommendation of the Select Committee on the Constitution in paragraph 7 of its third report that the powers of the commissioner should be extended to include such matters as the investigation of complaints from individuals about the way the Secretary of State, or other authority responsible for maintaining the register, has handled their affairs. The Bill simply provides for the commissioner to supervise and oversee the operation of the scheme, to hold office in accordance with the terms of his appointment, and to make an annual report to the Secretary of State.
	I appreciate the fact that Clause 25 of the Bill strengthens the duty of the Secretary of State in two respects with regard to reporting to Parliament; however, we believe that further improvements need to be made. Amendment No. 223 covers the first of those improvements: the ability of the commissioner to investigate complaints and data corrections from individuals whose details are on the register. Clause 24(3) sets out matters that will not be part of the commissioner's functions. Why are those exceptions not included within the commissioner's remit?
	Amendment No. 224 would permit the commissioner to take a general oversight of policy matters, but would expressly exclude from that thematic oversight the matters set out in its proposed paragraphs (a) to (e) inclusive. I have given the Government a reasonable choice here: if they say they cannot move as far as accepting my proposal in Amendment No. 223, I hope they would welcome that in No. 224. It is the appropriate function for the commissioner. It does not detract from the powers the Secretary of State wishes to give himself in relation to his official functions.
	Amendment No. 225 removes paragraphs (a) to (c) from Clause 24(3). It has a similar objective to part of Amendment No. 224, which is to challenge the limitations that the Government have imposed on the commissioner's functions. Amendment No. 226 would add the chief executive of the Serious Organised Crime Agency to paragraph (d), in addition to the Director-General of the Security Service, the Chief of the Secret Intelligence Service and the Director of the Government Communications Headquarters. Surely the Government should employ all the heads of the relevant police and security services in the detection and prevention of serious crime. Why has this particular office been excluded from paragraph (d)?
	Amendment No. 227 provides for what we believe to be a sensible liaison between the commissioner for the national identity scheme and the Information Commissioner. The effect of the amendment is that before the national identity scheme commissioner undertook a review that included the policy towards the provision of information to the various security directors-general, he could liaise with the Information Commissioner with a view to transferring responsibility for that review to the relevant person—that is, the Information Commissioner—or liaise with him or her with regard to the processing of personal data.
	The amendment returns to the objective of ensuring sensible thematic oversight. It does not seek to interfere with the courts, nor with the discretion of the Secretary of State. It seeks to provide sensible and independent oversight of a growing area of interference in the life of the individual.
	Under Clause 25 the commissioner must make reports to the Secretary of State, who must lay a copy of that report before Parliament. However, the Secretary of State may edit or delete information for a wide variety of reasons. He can remove information if it appears to him that publication would be prejudicial to national security, the prevention or detection of crime, or the continued discharge of the functions of any public authority. The fact that the Home Office and the UK Passport Service are public authorities means that any critical material in the commissioner's report may be excluded as it would undermine them, thus undermining the very purpose of the commissioner. The Secretary of State may also exclude any information that appears to him to be contrary to the public interest.
	We believe that it is important that the commissioner's role should be broader, and his powers stronger. In particular, he should report to Parliament directly, as the Information Commissioner already does. It is impossible to carry out a truly independent review if reports to Parliament are filtered by the Secretary of State. Ideally the commissioner's role should extend to overseeing the operation of the registration and identification scheme as a whole. If it is envisaged that the Secretary of State will make repeated extensions to his powers through the passing of regulations, it is surely important that the commissioner is able to report on the use of such powers. That will allow parliamentarians to assess whether further extensions are justified.
	My remaining amendments in this group cover two broad issues. Amendments Nos. 231 to 236 look at the balance of power between the Executive and Parliament. The Select Committee on the Constitution recommended at paragraph 7 of its third report that the commissioner should be able to report directly to Parliament, and we agree. Despite the fact that the commissioner is appointed by the Secretary of State, he is carrying out a public function for which he should account directly to Parliament. The Government's view is that the commissioner is there to provide the Secretary of State with reassurance that the ID cards scheme is operating correctly. But that fails to take account of the need for the public at large to be assured that the register is being maintained in accordance with the law and the wishes of Parliament, not merely that the scheme accords with what the government of the day want. The proposals in the Bill mark a whole new departure in the relationship between the state and the individual, and Parliament has a vital role to play in a system of accountability for the oversight of the scheme.
	Amendments Nos. 231 to 236 broaden the commissioner's power by ensuring that reporting takes place directly to Parliament. Amendment No. 232 ensures that the commissioner reports to Parliament as well as to the Secretary of State. Amendment No. 234 goes much further. It includes a general extension that will allow the commissioner to report on any matter he or she feels is appropriate. The information-sharing powers in the Bill in particular are potentially without limit. The person charged with independent scrutiny should be given the appropriate remit. Amendment No. 234 removes the power of the Secretary of State to censor the report. Amendment No. 235 is merely consequential on Amendment No. 232.
	Finally, in this canter through, Amendments Nos. 237 to 242 refer to the power to edit the report. They all have the effect of asking how the report of the commissioner can be meaningful to the public if parts of it are censored by the Secretary of State. If we are not told whether any censorship has taken place, how can we truly judge the value of that report? The amendments ask the Government to justify the provisions of Clause 25(4). Amendment No. 241 is simply consequential on Amendment No. 237. I beg to move.

Lord Crickhowell: I added my name to the majority of the amendments which have been so admirably spoken to by my noble friend. I need not go over all the ground which she has covered in detail and with great clarity. However, she made one point that is worth repeating which I believe concerned a response of the Minister to a Select Committee report that the primary job of the commissioner was to advise the Secretary of State. I do not believe that is the primary job; I think the primary job is to report to Parliament and to protect the citizen. It is extremely important that the role of the commissioner as the protector of the citizen and as the rapporteur to Parliament should be included in the Bill, and that the powers given to the commissioner should be strong and effective. We have already heard that the Information Commissioner reports directly to Parliament and that seems to me an admirable precedent.
	During our long debates we have discovered that the Government are taking remarkably wide and very considerable powers to amend the legislation by order. Against that background it is particularly important that we should have a commissioner who has absolute freedom in the widest possible sense to do his job and to present whatever information he feels is appropriate to Parliament.
	I have no hesitation in saying that this is one of the most important sets of amendments in the whole Bill and that I support my noble friend's amendments. I suspect that we will not resolve the matter in this sixth day in Committee. I suspect too that we will be told, "Ah, Clause 25 as it now stands does after all ensure that after the Secretary of State has a look at it he must lay reports before Parliament". But that is the wrong way around. This is one of the occasions when Parliament should insist on its rights and its position as the supreme protector of these kinds of matters and should insist on the kind of amendments that my noble friend has proposed.

Lord Lucas: I have a couple of amendments in this group, and I support everything that my noble friend Lord Crickhowell has just said. It is, to my mind, one of the crucial parts of the Bill. We should strengthen the commissioner to the point where he can rank alongside the Information Commissioner, which provides a good model. He and the Data Protection Registrar, who preceded him, have done extremely well in protecting the public interest in some crucial areas. Although at the moment we are some way away from having ID cards, it is clear that this area will become critical, because we are moving towards a surveillance society. As the Minister has said, we are doing that because that is what we want to do. We are moving in small, well reasoned steps, each of them taken because it offers us a public advantage. These technologies will make it much easier for us to catch criminals, to suppress crime and to order society. That is what we want to do, and from the current indications—looking at the relative penetration of cameras and similar devices in this country versus other countries in Europe—it is clear that we are well ahead of Europe in accepting and in wanting those technological security measures. Perhaps because we have so few policemen on the beat we at least want someone looking over us.
	None the less, it is the way that we are going, and the technological capability is increasing apace. Some of that is directly tied in to the Bill. Facial recognition, with high quality cameras, is now possible at quite some distance. When you tie that in to everyone having their facial biometrics on the ID register, you suddenly have a capability of running a camera across a crowd and knowing exactly who everyone in it is. That will be extremely useful when it comes to public disturbances or watching people running away from a crime. We are going to allow that when the time comes.
	When everyone's fingerprints are on file, it will become much easier to catch up with people, for example, at boot fairs. You merely get them to sell you something, pop it in a plastic bag and you have their identity, immediately registrable against the national identity register. It is not just the things that flow immediately from the Bill that will be there. Because we all have the unique number it will key in to all sorts of other private information systems. Radio frequency identification tags are beginning to come in, and Asda has had a serious experiment with them. It is clear that the technology is becoming extremely useable. I expect in a few years' time to march into my local branch of Marks and Spencer and be told by the shop assistant that he really thinks I should change my underpants because I bought them from him three years ago. They will have an RFID tag, and the information system pulls up exactly what I have bought in that store over the past years. That sort of technology is so useful for business that it is bound to happen.
	Once you have those tags they will become readable in all sorts of ways. There will not any more be the traditional detective story problem where you have to go out and visit 2,000 shops to find where a garment came from; you will just read the tag and you will know immediately where it came from. Our whole lives and our buying history—to the extent that they are not pinned down already through telephone and number plate recognition and other technology that we are now used to—will be available through this one unique number. We are going to agree to it, and anyway it is the way that society is going to be.
	So we had better jolly well give ourselves some decent protections. Since there is a model in our data protection legislation we can follow, we should move to that now. I know that 15 or 20 years down the road we may want something more, but now we should move to what we know we are likely to want. My amendments, supplementary to those tabled by my noble friends, are intended to achieve that.

Lord Phillips of Sudbury: I have tabled Amendment No. 222 in this group and support Amendments Nos. 231 and 234. Amendment No. 222 is an adjunct to Clause 24(2) which describes the functions of the commissioner in keeping various matters under review. My amendment would add a paragraph that would state:
	"In discharging those functions the Commissioner shall have particular regard to the effectiveness of the protection of confidentiality and use of individuals' information on the register under the provisions of this Act".
	Concern and anxiety about privacy and the confidentiality of citizens' private information is now commonplace in some quarters. I view my amendment as the twin of Amendment No. 221 and others in the group. It would protect confidentiality more than the Bill as currently drafted does. Clause 1, the Bill's keystone, describes the register as facilitating,
	"the provision of a secure and reliable method",
	for ascertaining and verifying registrable facts. That is more about the ascertaining of facts. My amendment is about keeping facts confidential when they should be confidential.
	I strongly support the comments of the noble Baroness, Lady Anelay, regarding the group as a whole, particularly those amendments that deal with the relationship of the commissioner with Parliament. For all the reasons that she and other noble Lords have mentioned, it is very important that the principal relationship and answerability should be between the commissioner and Parliament, not between the commissioner and the Secretary of State, or anyone else. Because they would more closely parallel the arrangements for other commissioners, such as the Information Commissioner, I hope the Government will see the need for these amendments and take account of the advice that has been given by the committees that have examined this matter.

Lord Hylton: I am convinced that we need very strong safeguards, both for individuals' privacy, as described in the amendment tabled by the noble Lord, Lord Lucas, and for confidentiality, mentioned in the amendment tabled by the noble Lord, Lord Phillips of Sudbury. This Bill has been creeping up on us for a number of years and that may explain some of the apathy with which it seems to be considered by large swathes of public opinion. But when people realise what the Bill really contains, concern will be multiplied and I urge the Minister to accept the need for safeguards and to tell us today that they will be effective.

Baroness Scotland of Asthal: I hope that I can reassure the noble Lord, Lord Hylton, that in fact the safeguards in Clause 24 do exactly what the amendments in the names of the noble Baroness, Lady Anelay, and the noble Lords, Lord Lucas and Lord Phillips, seek to do.
	Perhaps I should clarify a matter with the noble Baroness, Lady Anelay, because she may be labouring under a burden under which I laboured earlier in having an older version of the Bill. The noble Baroness referred to parts of the commissioner's reports being excluded if they would affect the efficient and effective delivery of public services. This was in the old version of the Bill, but Clause 25(4) gives only two reasons for excluding material from the commissioner's report—that is, national security and the prevention or detection of crime. I see her nodding, so we can accept that the two items in question have been expunged. The noble Baroness will remember that they were taken out because of various concerns, and I hope that I have been able to reassure her on that point.
	This rather large group of amendments deals with a number of problems that we will come to in the next two groups when we deal with the amendments in the names of the noble Lords, Lord Phillips and Lord Dholakia. In answering, I will seek to address some of those issues thematically. Bearing in mind the complexity of the points raised by the noble Baroness and the noble Lords, it may take me a little time to go through each amendment in order to reassure Members of the Committee that their concerns are not merited. I do not quite share the vision of the noble Lord, Lord Lucas, regarding what our world will look like in a very short time, but that does not mean that I do not understand the basis of his concerns in relation to safeguards and security.
	Before I turn to the substance of the amendments, it may be worth reminding your Lordships why we are proposing to create an entirely new post of national identity scheme commissioner to provide oversight of, and report on, the operation of the identity card scheme. First, the creation of this new commissioner will not replace any existing safeguards. For example, the Information Commissioner's powers relating to data protection and freedom of information will apply to the operation of the national identity register. Similarly, the office of the Parliamentary Commissioner for Administration would be able to review any complaints about the agency issuing identity cards, brought to it through a Member of Parliament, in exactly the same way as it currently does for complaints about the UK Passport Service or other government departments and agencies. So nothing in that regard changes.
	The creation of the national identity scheme commissioner is an additional safeguard. At the moment, there is no such commissioner relating to the issue of passports or driving licences, but we recognise that the introduction of an identity card scheme, which, as we have discussed, the Government have always intended should become compulsory, raises additional issues and we believe that we are right to create this new level of oversight.
	I hope that noble Lords opposite will approve of what we are proposing. It is an important safeguard not just in relation to the arrangements for issuing identity cards but also in relation to the operation of the national identity register, including the arrangements for the provision of information from the register, as well as keeping under review the uses to which ID cards are being put. This is a very wide remit. The commissioner will be there to reassure the Home Secretary, Parliament and the public through his published reports that the identity card scheme is operating correctly. So I say to the noble Lord, Lord Crickhowell, that delivery on the issues about which he is concerned will be carried out in the way in which we have cast the commissioner's role in the Bill.
	We believe that Amendments Nos. 221, 221A and 222 are all unnecessary. The first of the matters which the commissioner must keep under review is the arrangements maintained by the Secretary of State for the purposes of his functions under the Act. The primary duty of the Secretary of State under the Bill is set out in Clause 1(1)—the duty to establish and maintain a register of individuals. Furthermore, the statutory purposes in Clause 1(3) refer to the provision of a secure and reliable method for ascertaining registrable facts about individuals. It follows therefore that the commissioner already has oversight of the matter set out in Amendment No. 221 moved by the noble Baroness. Arrangements made by the Secretary of State in relation to the accuracy and integrity of the information held on the register will fall under arrangements made by him for the carrying out of his functions under the Bill. Amendment No. 221 specifies one aspect of those arrangements, but we do not think that it is necessary to do so.
	For much the same reason, we take the view that Amendments Nos. 222 and 221A are unnecessary. The commissioner is bound by virtue of Clause 24(2)(c) to keep under review the arrangements, made by persons to whom information may be provided, for obtaining, recording and using the information available to them under the Act.
	The measures taken to ensure privacy and confidentiality must inevitably be encompassed within that. The subsection also refers expressly to using the information. We would therefore submit that the spirit of Amendments Nos. 221, 221A and 222 is already reflected in Clause 24.
	Furthermore, I reiterate that the Secretary of State, as a data controller, will be bound by the Data Protection Act 1998. The commissioner is able to obtain information for the purposes of carrying out his functions, as Clause 24(4) provides that it is the duty of every official in the Secretary of State's department to provide the commissioner with all the information that he requires for the carrying out of his functions, and this includes information from the register itself.

Lord Phillips of Sudbury: I am grateful to the noble Baroness for giving way. I hesitate to interrupt her flow, but she was arguing a minute ago that Clause 1(3) gives us what we need. She referred to the statutory purposes being a facilitation of providing a secure and reliable method of ascertaining facts. I hope she will accept, however, that there is a difference between ascertaining facts—where, I accept, Clause 1(3)(b) provides a secure and reliable method—and securing that information while keeping its use confidential. Since it is so important—organisations such as Liberty, Justice and the Law Society are all het up about it—what is the objection to making it crystal clear in the language of the Bill?

Baroness Scotland of Asthal: It is already crystal clear. The whole way in which the commissioner will work is going to incorporate that. The amendment of the noble Baroness, Lady Anelay of St Johns, takes out one part of it but, if you look at the structure which we have in the Bill, all of those issues are ones on which the commissioner can report and have scrutiny. This is therefore an unnecessary complication, but we absolutely agree with noble Lords when they say this is an important issue.
	Amendment No. 223 seeks to add to the powers of the national identity scheme commissioner by allocating him a formal role in the investigation of individual complaints and in dealing with data corrections. It would be wrong to give the commissioner a formal role in the investigation of complaints. Complaints handling will be a routine function that the new agency will need to fulfil.
	The United Kingdom Passport Service—which will form the basis of the new agency to be established to issue identity cards and passports—already has a tried and tested system for dealing with complaints, whether it is about the level of service, including delays, or the outcome of an application. It also has a published set of service standards.
	There is an existing four-stage complaints procedure which includes a review by the local customer service manager, followed, if not satisfied, by a review by the headquarters' customer service department. If not satisfied, a complainant can write through their MP to the Passport Service chief executive or a Home Office Minister and then, as I have already said, to the Parliamentary Commissioner for Administration—the ombudsman.
	These avenues will all remain open to the public once identity cards are introduced. In addition, there will be nothing to stop members of the public alerting the commissioner to complaints they have had about the agency's conduct. However, where they have not already done so, we would expect the commissioner to direct many of these complaints back to the agency's own internal complaints-handling process.
	Having said that, we would expect the commissioner to review the way the agency manages complaints and, in appropriate cases, he or she may decide to make further inquiries into any specific complaint. What is not proposed is that the commissioner should be responsible for dealing with every single complaint, however trivial.
	The commissioner should scrutinise the agency's own complaints-handling processes and report on these as he or she sees fit, including in an annual report. Staff of the agency will be under a duty to co-operate with the commissioner and provide information to him or her by virtue of Clause 24(4). If the commissioner is not satisfied with the handling of complaints in general, or a complaint in particular, he can of course raise it with the Secretary of State and refer to it in his reports under Clause 25, all of which will be laid before Parliament.
	Amendment No. 223 also seeks to give the commissioner a role in data correction in individual cases. Arrangements for ensuring the accuracy of the data on the register will be one of the issues of concern to the commissioner in carrying out his functions under Clause 24(2)(a). However, we do not think it would be appropriate to give him a duty to investigate individual cases. As I hope I have made clear, the operation of the register will need to comply with the Data Protection Act. The duties of the Secretary of State as a data controller—including a duty to ensure accuracy—the rights of the individual as a data subject and the powers of the information commissioner will all apply to the national identity register as they do to other databases. All the complementary things that have been said about the information commissioner in discharging that role will remain in situ.
	Individuals will be able to establish details of their own entry on the register. We hope to make this possible by means of a secure online check. In any event, they will be able to make a subject access request under the Data Protection Act. If individuals are concerned that there is an error on the register, they can request that the information is removed or corrected. In the normal course of events, the problem should be solved without the need for reliance on formal legal rights. But ultimately, an unreasonable failure to rectify information can be the subject of a formal application for rectification made to the court under Section 14 of the Data Protection Act.
	Amendment No. 224 seeks to add to the remit of the national identity scheme commissioner both "general policy matters" and areas that are currently excluded from his remit if any of those areas raises a matter "of substantial public interest".
	Amendment No. 225 would add to the commissioner's remit some of the functions that we have excluded from his remit; namely, the exercise of powers which are exercisable by statutory instrument—or by statutory rule in Northern Ireland—appeals against civil penalties, and the operation of the Act to subordinate legislation.
	Amendment No. 227, read in conjunction with Amendment No. 224, would, first, allow the commissioner, when undertaking a review of provisions of information to the intelligence agencies to liaise with the intelligence services commissioner with a view to referring responsibility for that review to him; and, secondly, allow him to liaise with the information commissioner in relation to the processing of personal data.
	It is important that the powers in the Bill are properly scrutinised, but I also think it is important that we use the resources available to us effectively. The reason for excluding the matters listed in subsection (3)(a) to (c) from the role of the commissioner is that those parts of the Bill are already subject to independent scrutiny either by Parliament or by the judiciary.
	Taking each in turn, they are: the exercise of the powers by means of statutory instrument—or statutory rule in Northern Ireland—which would be subject to parliamentary oversight; appeals against civil penalties which will be a matter for the civil courts; and criminal offences which are a matter for the criminal courts.
	Given that the matters which are excluded from the remit of the commissioner are all subject to adequate and indeed more appropriate scrutiny by others, we consider Amendment No. 225 to be unnecessary.
	On Amendment No. 226, we say that there is no need to exclude the provision of information to SOCA from the remit of the commissioner. The security services in subsection (3)(d) are overseen by the Intelligence Services Commissioner, but this is not the case with SOCA. If Amendment No. 226 were accepted, there would be no independent oversight of the provision of information from the register to SOCA. I am sure that that is not what the noble Baroness intended—I see her nodding that that is so. We do not believe that it would be sensible to remove a safeguard from the Bill and therefore it should stay in situ.
	The effect of Amendment No. 224 would be that the commissioner would have oversight in relation to an excluded matter where a particular case raises a concern of substantial public interest. The amendment seeks essentially to achieve something which is already provided for in the clause. Taking paragraph (a) of the amendment, for example, while it is not for the commissioner to scrutinise the actual exercise of delegated powers—that is Parliament's role—it is clear from the text of Clause 24(2)(a) that it is his role to review the Secretary of State's functions,
	"under this act or the subordinate legislation made under it".
	Therefore,
	"any particular case affected by these powers or rules, which raises a concern of substantial public interest"—
	to quote the text of the amendment—would already fall within the jurisdiction of the commissioner.
	Paragraph (b) of the amendment is, in so far as it refers to appeals against civil penalties, no different from Clause 24(3)(b). Appeals are matters for the civil courts and it would not therefore be appropriate for the commissioner to have an overlapping jurisdiction. I do not think that is what the noble Baroness would want. However, we believe that it is right that the commissioner should have oversight of the rest of the civil penalties machinery because that will be run by the Secretary of State and, without the commissioner, would not be subject to any oversight. Therefore the aspect of paragraph (b) of the amendment which seeks to remove that part of the commissioner's jurisdiction is inappropriate.
	Paragraph (c) of the amendment would enable the commissioner to examine the prosecution of a person for a criminal offence under the Bill if it raised a matter of substantial public interest. We do not think that that is appropriate. Prosecutions are a matter for the police, the Crown Prosecution Service and the courts. In very exceptional circumstances, after the event, a prosecution will be the subject of an inquiry. It would be very unusual to empower a commissioner to review prosecutions that he considered to raise a matter of substantial public interest.
	Paragraphs (d) and (e) would give the commissioner jurisdiction to review the provision of information to the security services, once again subject to a substantial public interest test. Again, this would result in an overlapping of responsibility between the commissioner and the Intelligence Services Commissioner. Such an overlap can result only in confusion, and it is our view that sensitive issues such as this are better dealt with by those who deal with them on a daily basis.
	The first part of Amendment No. 227 is consequential on paragraphs (d) and (e) to which I have just referred. I shall not deal with it specifically unless the noble Baroness indicates that she is minded for me to do so.
	I shall now turn to Amendment No. 231 and those amendments that are primarily concerned with the reports of the commissioner. While I appreciate the arguments put forward in proposing these amendments, the Government consider that it is necessary for the reports to be addressed to the Secretary of State with the potential for parts of the report to be excluded from the report laid before Parliament. This is primarily because of the function of the scheme commissioner in overseeing the provision of information from the register without consent.
	There are precedents for this in the oversight of police activities which fall to the Office of the Surveillance Commissioner. The Chief Surveillance Commissioner reports annually to the Prime Minister who has similar discretion to that set out in this clause. Similarly, when Her Majesty's Inspector of Constabulary reports to the Secretary of State, the Secretary of State has power to exclude from publication any part of a report on the grounds that not to do so would be against the interests of national security or might jeopardise the safety of any person. These amendments would remove the Secretary of State's discretion to exclude information held in a report, where he considers that a matter contained in the report would be prejudicial to national security or the prevention or detection of crime.
	There are certain circumstances, given the sensitivity of some of the information relating to provision of information without consent, where it would be prejudicial to these matters if a report were laid in Parliament which could then be publicly read. For example, the commissioner would have responsibility for oversight of the provision of information without consent to the Serious and Organised Crime Agency. I have already explained why we think the commissioner needs a role there, but I am sure noble Lords will understand the sensitivity of that role and the importance of getting it right. To make public for what purposes that organisation has been provided with information in every case would allow very sensitive information to be released. It would also be inconsistent with the usual oversight procedures for these bodies and as such may limit the use of the register by such bodies.
	It is fairly easy to see how information could be included in such a report that would be prejudicial to national security or the prevention or detection of crime, but another example of this is where information is provided to the police and to the Inland Revenue and Customs and Excise for their ongoing fraud investigations. We do not think it is appropriate to raise the exclusion threshold to serious crime since information may be provided without consent under the previous clauses for all crime. The Government therefore see this power to exempt information as necessary.
	There are safeguards to the use of this power, however. The practice of the Intelligence Services Commissioner and the Interception of Communications Commissioner is to provide a report to the Prime Minister in two parts, one to be laid in Parliament and a confidential annex not to be published. If such a practice were adopted by the commissioner, it would in effect allow the commissioner to determine which parts of his report should be made public, although this would be done in consultation with the Secretary of State. It would be a practical way of dealing with this sensitive issue.
	I realise that the powers of the newly created national identity scheme commissioner are of great interest, but it is important that we ensure that we provide the right balance of powers. We think that the Bill has found the right balance. We do not consider that it would be right to give the commissioner responsibility for investigating complaints, and we think that there is a very good case for the commissioner to report to the Home Secretary, as the Home Secretary's key adviser on how the identity cards scheme is being operated, rather than to report directly to Parliament.
	For the reasons I have set out as regards this large group of amendments, I hope noble Lords will see that: first, we agree with them on the need for scrutiny; secondly, we have provided for appropriate high-level scrutiny; and, thirdly, these amendments are wholly unnecessary.

Lord Crickhowell: I thank the noble Baroness for giving us such an amazingly detailed response to this large list of amendments and Sir Humphrey and his assistants in drafting this amazing response, which will certainly keep us working over the Christmas Recess to work out the details of it.
	I was provoked by one section of the noble Baroness's speech, in which she referred to the complaints procedure. I was perhaps provoked by my experience over the past five months with my local tax office, which, after prolonged efforts on my part, has now disclosed that it has lost all my papers. I was not greatly encouraged by the procedures she set out, which included writing to my Member of Parliament and a host of other people. Indeed, my experience as a Member of Parliament in dealing with complaints of this kind does not make me think that the procedure is quite as simple and perfect for the ordinary citizen as I think the noble Baroness was suggesting. It is not enough for the commissioner to be able to report on the general handling of complaints if specific advice is not given to citizens that they can go to the commissioner to advise that their particular complaint has been badly handled. Surely, that is the very least that we must have.
	It must be made clear in the legislation that a citizen need not necessarily have to go through the unbelievably long and complex set of procedures outlined by the noble Baroness before he can go to the commissioner and say, "Look, my complaint has now taken a year or more"—that is what might well be involved—"and I think it is time that you, the commissioner, intervened to see that something is done about it". That is one matter I will want to come back to on Report.

Lord Lucas: I am very grateful to the noble Baroness for her reply to my Amendment No. 221A. I never imagined that Clause 24(2)(c) could be construed so widely. Perhaps I may ask her a couple of supplementary questions on that. I take it that in subsection (2)(c) the word "information" has its ordinary English usage and is not a defined term. Secondly, the noble Baroness said that the arrangements made for using the information can extend to the uses made of it. The arrangements I make for using my car are not the same as the uses which I make of my car. So in ordinary English I still find Clause 24(2)(c) extremely confusing. I cannot, as I say, in ordinary English, extend it as far as she wishes to the first part of my Amendment No. 221A. If the noble Baroness can assure me that there is some quirk of language where "arrangements made for using" are the same as "the uses made of", I should be extremely grateful.
	I should also be grateful for a reply to my Amendment No. 236A—unless I missed it, in which case I will be happy to read it in Hansard. I take the opportunity to urge my noble friend, when she returns with amendments on Report, to consider making it more explicit that the national identity scheme commissioner has responsibility for the effects of the scheme on the privacy of the individual, because that could well benefit from being made explicit in the Bill, rather than being left to the back end of an extremely obscure subsection.

Lord Stoddart of Swindon: I had not intended to intervene in this debate until I heard the Minister's reply. What worried me about it was that she said that she did not accept the graphic picture of what the surveillance society that we already have meant. Frankly, she does not understand—perhaps, other Ministers do not—exactly what is going on, and neither do the people of this country. Most people probably think that surveillance cameras are good. We now have 7 million of them in this country—twice as many as any other European country. That is one for every eight and a half of the population. That is a considerable number of cameras that are spying on us. People say, "They catch burglars, and what have you". So they do.
	However, we read in the newspapers last week that they are also prying into ladies' boudoirs. There was a case that showed that one group of surveillance cameras was prying on the private life of a woman, even photographing her undressing in her bathroom. Things can get out of hand. That is why Ministers, in particular, and parliamentarians should not be complacent about what is happening. An identity card is a further intrusion into the privacy of the individual. There is no mistake about that. We have not had them before and when we have them it will be an intrusion into the privacy of every person in this country, once they eventually become compulsory.
	Legislation creep happens in some strange ways. I have been in this House for quite a long time and I remember when, in my first years, the late Lord Whitelaw was Leader of the House. We were discussing the interception of communications. One of the points raised was the position of Members of Parliament and Peers. We were given an absolute assurance that Members of Parliament and Peers' phones would never be tapped. Noble Lords trusted the Government and said, "Here is an upright man giving us an assurance that conversations between Members of Parliament and their constituents and Peers and people who care to write them should be absolutely private and sacrosanct". But our present Prime Minister refuses to give an assurance that that is continuing. That is why it is necessary to have absolute safeguards in the Bill—not just assurances from Ministers.
	Like other noble Lords, I very much appreciate the care with which the Minister has dealt with this group of amendments. They are complicated and her reply was complicated. As the noble Lord, Lord Crickhowell, said, we shall all read the details of her reply during the Recess and will deal further with them at Report. I issue this warning: Parliament must be ever careful of what the Government do, and the Government, if they have any democratic credentials, should be at least as keen as parliamentarians to ensure that the traditional freedoms of individuals in this country are safeguarded.

Lord Thomas of Gresford: The position of the national identity scheme commissioner is to supervise the operation of the Act. Therefore, he must be regarded by the Government as a very important safeguard against the possibility that government may misuse the very extensive powers that the Bill gives them.
	It is disappointing, therefore, how limited the role of the national identity scheme commissioner is in subsection (2). On analysis, one sees that the commissioner is confined to considering structures and frameworks. Paragraph (a) refers to,
	"the arrangements for the time being maintained by the Secretary of State".
	Paragraph (b) refers to,
	"the arrangements for the time being maintained by designated documents authorities".
	Paragraph (c) refers to,
	"the arrangements made, by persons to whom information may be provided".
	Separately is,
	"the uses to which ID cards are being put".
	Presumably that refers to the uses made by the holders of those cards. I do not understand why the Government should resist the first suggestion of the noble Lord, Lord Lucas, in Amendment No. 221A:
	"the uses to which information recorded in the Register is put"
	by the Government. Why should the commissioner look at how the holder of an ID card uses it if they do not look also at how the Government use the information on the register?
	Everything is subject to extensive exceptions under subsection (3). I noticed paragraph (c), which refers to,
	"the operation of so much of this Act or of any subordinate legislation as imposes or relates to criminal offences".
	I repeat:
	"as . . . relates to criminal offences".
	Like the noble Lord, Lord Stoddart, I believe that the people of this country who are not yet alive to the significance of the legislation would at the very least expect that their privacy and the confidentiality of the information provided on the register would be preserved. Those matters are referred to in the second part of Amendment No. 221A, tabled by the noble Lord, Lord Lucas, and Amendment No. 222, tabled by my noble friend Lord Phillips of Sudbury.
	What do we see in relation to criminal offences? Under Clause 29 the unauthorised disclosure of information is a criminal offence. It states:
	"A person is guilty of an offence if . . . he provides any person with information that he is required to keep confidential".
	Clause 30 creates an offence of providing false information for the purpose of making an entry on the register. Clause 31 creates an offence of tampering with the register. Surely the operation of the legislation in relation to those offences, which deals with the protection of confidentiality, the accuracy and integrity of the register and so on, should come within the scope of the functions of the national identity scheme commissioner. He ought to be able to say that the scheme as set up is unsatisfactory in protecting privacy and confidentiality. He ought not to face an argument, one that would not be put in a court of law but by someone from a ministry, which states, "You cannot inquire into the unauthorised disclosure of information, the providing of false information, tampering and so forth, because those are criminal offences. You cannot look at anything related to criminal offences".
	The area covered by the national identity scheme commissioner has been unduly limited. He should be given the widest possible remit to investigate all matters arising out of the operation of this Bill when it is enacted. In so far as these amendments seek to widen his remit, I support them entirely.

Lord Hylton: First, I agree entirely with the noble Lord, Lord Thomas of Gresford, that when we return to this on Report we really must have something in the Bill that deals with the uses to which information recorded in the register is put, which is the point raised by the noble Lord, Lord Lucas, in his Amendment No. 221A. Secondly, I also agree with the noble Lord, Lord Thomas, that there will be in the nature of things a large number of potential offences which never reach the stage of prosecution. Those should be a matter of concern to the commissioner.

Baroness Scotland of Asthal: If I dealt with all these amendments in graphic detail, I would avoid having to say any more. But of course I never quite manage to deal adequately with the noble Lord, Lord Thomas of Gresford. I shall therefore respond to the issues that have been raised.
	In response to the noble Lord, Lord Crickhowell, the number of complaints we have received relating to the UK Passport Service is 8,386, which is the equivalent of 0.16 per cent of the total business, while we have received some 1,685 positive comments. The most recent survey, carried out in November 2005, suggests that 80 per cent of those interviewed did not take their complaint beyond the first stage.

Lord Crickhowell: It was exactly that point, when the noble Baroness spoke earlier, that prompted me to speak again. The kind of complaints that arise from the issue of passports is totally different from the kind that will result from the use or misuse of the register or the kind that have been the subject of this debate. The statistics are therefore wholly irrelevant.

Baroness Scotland of Asthal: While I hear what the noble Lord says, we do not agree. Looking at the kind of complaints and the process here, we believe it is important to ensure that the procedure is accessible to people so that they can raise their concerns and know that they will be dealt with quickly and efficiently. We have here a detailed complaints procedure that has proven its worth over time. That is why we have relied on it.
	In response to the noble Lord, Lord Lucas, I should say that I have dealt with his amendment. I tried to do so at speed, but I am sure that he will be able to read what I said. The word "information" as used in Clause 24(2)(c) has its ordinary English meaning. I reiterate that the drafting here covers the spirit of the noble Lord's amendment. His point here is perhaps arguable. I shall look again at the first half of his amendment. I think it is completely covered, but in case it is not, I shall review it so that we can come back to it. I shall certainly endeavour to write to the noble Lord between now and Report to see whether there is anything else in it. I do not think there is, but it might be worth looking to ensure that that is right. On the points raised by the noble Lord, Lord Thomas of Gresford, Clause 24(2)(d) refers to anyone, not just the holder of an ID card.
	I hope that I have been able to reassure noble Lords that the plethora of opportunities which there now are to scrutinise these provisions will enable the commissioner to do his job and to do it very well indeed.

Lord Lucas: I am very grateful for what the Minister has said. However, the noble Lord, Lord Thomas of Gresford, has raised a further doubt in my mind, as is his habit. Can the noble Baroness confirm that the word "relates" in Clause 24(3)(c) does not bring in Clause 20? It could be read that way if one were being particularly obscure about it, but I imagine that it is not intended to be.

Baroness Scotland of Asthal: I do not think that it is intended to be. I said that I would look at the first half of the noble Lord's amendment, which says:
	"the uses to which information recorded in the Register is being put".
	I very much understood the way in which the noble Lord argued it. As it is arguable, the amendment could be seen as the other half of Clause 24(2)(d). I do not think it is—I think it is fine—but the noble Lord has raised a point and it is worth looking at to ensure that we have dotted all the i's and crossed all the t's.

Lord Lucas: I accept that and I am extremely grateful for it. The point I raised followed on from what the noble Lord, Lord Thomas, said on Clause 24(3)(c) and whether the word "relates" in that clause could be taken to refer to Clause 20. I imagine that it could not but I would be grateful for confirmation.

Baroness Scotland of Asthal: Clause 24(3)(c) does not exclude Clause 20 from the commissioner's remit.

Baroness Anelay of St Johns: I thank all noble Lords who have spoken in this important debate on the part of the Bill relating to the commissioner's work, which will affect the confidence that people may have in the operation of the whole scheme. It would be wrong of me to go into detail, and we will be looking at the Minister's reply very carefully, but it might be helpful if I were to point out one or two areas to which we will most definitely need to return on Report and others where we may not. First, however, I said that I would not return to Amendment No. 226. I entirely accept the Minister's argument on that matter. I will consult my noble friend Lord Northesk on Amendment No. 221, but I suspect that he may well accept the Minister's argument on that.
	Amendment No. 223 relates to the matter of complaints and shows the difference in approach between noble Lords and the Government on these issues. It reflects the concern on this side of the House that the commissioner needs to have an independent oversight in his role of protecting the rights of the individual, reporting to the individual and involving Parliament in scrutiny, rather than this being a matter where it is convenient for the Secretary of State to have the reports and the accountability, so that he is assured, in his eyes, that the system is working properly.
	I particularly took note of what my noble friend Lord Lucas said about privacy. I assure him that I shall look very carefully at that matter before Report. I was interested in Amendment No. 222, tabled by the noble Lord, Lord Phillips of Sudbury. I certainly hope he will develop it at Report so that I can see whether there is anything else I need to do on the issue.
	I was certainly taken aback by the way in which my noble friend Lord Lucas painted a picture of the future. He put his finger on the importance of the extent to which the public accept—or, indeed, not accept—how the scheme might roll out and the impact it might have as society evolves over the next decades. At Report, in looking at the role of the commissioner, we will need to ensure that there is a way of enabling the public to exercise their right to complain about how the system may be developing in a way they had not anticipated. That will drive our approach. Indeed, my noble friend Lord Crickhowell opened the debate by pointing out that it should be the commissioner's primary task to act as a supreme protector of the public via Parliament. We will try to frame a series of amendments to provide that protection. I beg leave to withdraw Amendment No. 221.

Amendment, by leave, withdrawn.
	[Amendments Nos. 221A to 227 not moved.]

Lord Phillips of Sudbury: moved Amendment No. 228:
	Page 21, line 43, at end insert—
	"( ) The Commissioner shall establish and operate a system to deal with individual complaints concerning the functioning of the Register and the use of information on it under the provisions of this Act in accordance with an order made by the Secretary of State."

Lord Phillips of Sudbury: A good deal of the substance of Amendment No. 228 has been dealt with by what the noble Baroness, Lady Anelay, said on the last group of amendments and what the Minister said in response. There were contributions to that debate by various noble Lords, so I shall keep this brief. To reassure the Committee, I propose to withdraw Amendment No. 229 in the interests of getting through the remaining business, but I do not think that the Government have given sufficient thought to the importance of complaints. The noble Lord, Lord Crickhowell, was correct in saying that there is not much comparison to be made between complaints to the Passport Office and the sort of complaints that we will have to contend with under the Bill.
	For a start, the day when having identity cards will be compulsory will, I suggest, be a contentious day. I know that many noble Lords think this is a straightforward managerial piece of legislation which nobody should object to but, believe me, millions of people are unhappy about it. Whether one is talking about designating the renewal of passports as having to be accompanied by ID cards or the day when 100 per cent of the public have to have them, I think one must anticipate a considerable amount of citizen unrest.
	Under Clause 5(5), when an ID card is issued, citizens must go for an interview, allow fingerprints to be taken, allow themselves to be photographed and otherwise allow themselves to be dealt with as the Secretary of State may require. The potential for upset is of a wholly different order from that involved in getting passports. Under the Bill, there is a penalty regime attached to failures; there is no penalty regime with regard to passports. To have nothing in the Bill that refers to complaints seems almost wilful.
	I know that the noble Lord, Lord Bassam, is as keen as I am to have the Bill that emerges from this place in a form which is helpful to the public, not one which needs a textbook to interpret it. I fear, day by day, that that is where we are headed. The complexities of many of these clauses are such that only a textbook will do; one will need a lawyer specialising in ID law to steer one around. Everybody groans—I groan myself—but that is the reality. However, I was comforted by the noble Baroness making it clear that the language of the Bill, although it makes no reference to complaints, is intended to give the commissioner a general oversight role—not to deal as a front-line recipient of complaints, but to see whether the scheme is working well or badly and, as part of her report, to make suggestions to Parliament, the Secretary of State, and so on.
	With regard to Report, I would be grateful if the noble Baroness would think more about the language of the Bill. I cannot see why there should not be a reference in the relevant clause to this very important role. I would be perfectly happy if the role was not that of a front-line recipient but of a general overseer. That would be reassuring for the public and would be helpful as authenticating the role of the commissioner vis-à-vis the complaints system. For all those reasons, and many others, I commend the amendment to the Committee.
	Perhaps I may read from the October report on the Bill of the Select Committee on the Constitution. Paragraph 9 of Appendix 1 states:
	"We believe this provision"—
	that is to say, laying the report before Parliament rather than the Secretary of State—
	"might be strengthened, to general advantage, in three ways. First, the Commissioner should be independent of the Secretary of State; second, his powers should be extended to include such matters as investigation of complaints".
	I have already conceded that if the commissioner were not charged with getting into the role of answering complaints generally, that would be sensible enough.
	The Minister will not have reflected the views of us who are keen on this amendment by saying that one could always go to the Parliamentary Ombudsman. The Parliamentary Ombudsman is an extremely distant creature for most of us. If you were to conduct a poll on the high streets of Great Britain, not one in 100 people would have any idea of what the Parliamentary Ombudsman really does. In any event, one can only get to the Parliamentary Ombudsman through an MP. Why should one burden an already burdened group of good men and women with very many complaints? I can assure the noble Baroness that it would make the 8,000 or so complaints to which she referred look tiny. I say that without any happiness. We need to provide something better between the citizen and the courts, or the citizen and the Parliamentary Ombudsman, than a void. I beg to move.

Lord Thomas of Gresford: I strongly support my noble friend's amendment. I do not make the concession that he did, however, that the commissioner should not be the front-line recipient of complaints. If the commissioner's office is not broad enough to take on that role, who will become the frontline recipient of complaints? Every person over the age of 16 will be required to register within the foreseeable future. One can immediately see the type of complaints that will arise as to the accuracy of the register, the way in which it is used, and the invasion of privacy and confidentiality that I spoke about a moment ago. It can have no comparison with complaints made by holders of passports. Those complaints are confined to a very small area of public business, but this area is going to be huge. When it is said that the register is going to give work to lawyers, all I can say is that when this Government close one door, another huge door opens. That is what we always say in the legal profession. It is an area of legislation that will create a great amount of work. We will welcome it and assist the public with it in due course.
	There has to be a system of complaints. You cannot expect individuals to approach Members of Parliament or Members of Parliament to receive "front-line complaints"—to use again my noble friend's phrase—and to pass them on to the Parliamentary Ombudsman. That is far too small an office to take on the resolution of difficulties that come about in relation to the register and its operation. The Act must provide some mechanism and it totally fails to do so. Not only is the whole concept of the Act unworkable; when it comes to the complaints that are going to arise from it, the people of this country will quickly see that they have no immediate point of redress and will act accordingly.

Lord Bassam of Brighton: I am grateful to the noble Lord, Lord Phillips, for raising this issue—although he is right in saying that much of it was dealt with in the earlier debate, in the very full response given by my noble friend Lady Scotland. I have a great deal of sympathy with the noble Lord, Lord Phillips, as he knows, on the subject of complaints, because I see complaints as a form of intelligence, ensuring that organisations that receive complaints are much more sensitised to the important value of issues that individual complainants bring to them collectively. In an earlier life, I used to ensure that we in our local authority had a very effective complaints process, for that very reason.
	It would be unwise of me to go over territory that has already been covered. It would not be right for the commissioner, as the noble Lord, Lord Thomas of Gresford, has argued that he should, to consider particular complaints in the form of a complaints service. If the commissioner did that, the important work of oversight of the operation of the scheme would be lost. That would not be helpful, not least because it is very important that the commissioner fills those valuable functions.
	In the first instance, it is proper that the agency organises itself well enough and is properly tasked with issuing identity cards and dealing with the complaints that arise from that. We do not want the commissioner to be overloaded with a complaints function, but we want the commissioner to be effective in reviewing the operation of the identity cards scheme more fully, including the way in which the agency itself handles complaints.
	I go back to the issue of how the United Kingdom Passport Agency handles its complaints. Although the noble Lord, Lord Crickhowell, has a point that there will be differences—in some instances, large differences—much of the way in which the United Kingdom Passport Service handles complaints will be relevant. Currently, the passport application pack contains a leaflet explaining the complaints procedure. It sets out the information that the UKPS needs to resolve problems and explains that complaints can be made by letter, fax, e-mail or telephoning the 24-hour number given in the leaflet. That means that the UKPS is very accessible.
	There is then a four-step process for complaints: they are initially handled by a customer service team in each regional passport office; customers who are not satisfied with the response from the regional office may take the matter up with the customer services department at the national headquarters, which also deals with general complaints about policy, unrelated to individual applications. Thirdly, customers who are not satisfied after steps one and two are advised to take their issue to their MP, and to take it up with the chief executive or the responsible Home Office Minister. Finally, any complaint not satisfactorily resolved by those means can of course be taken up by the parliamentary commissioner in the normal way. That process works well, and the management of complaints through the UKPS is very effective.
	Clearly, that system of complaints handling will need to be reformatted in some regards to deal with the additional work and workload that the ID cards scheme will give rise to, but it provides a very good basis from which to work. My noble friend Lady Scotland has already explained the positive response that the service receives from those who have made complaints, many of whom—some 52 per cent—were satisfied with the final outcome of complaints redress. We are told by market researchers in the field that that figure is very high in terms of responses.
	Complaints handling will be a routine function that the agency will need to fulfil. Members of the public will be able to contact the commissioner with complaints about the agency's conduct, even if the commissioner directs the majority of those sorts of complaint back to the agency's internal complaints handling process. The overview of complaints will enhance the commissioner's awareness of the agency's performance and enable him to make further inquiries into any specific complaints. Additionally, should the commissioner request it, he would be able to be provided with information relating to any or all the complaints that the agency had received, particularly if the commissioner felt that it had a bearing on the way in which the agency was operating. It is also likely that he will scrutinise the agency's own complaint-handling procedures as part of the research for his annual report. Staff will be under a duty to co-operate with the commissioner and provide information to him, as has been said, by virtue of Clause 24(4). If the commissioner is dissatisfied with the handling of complaints in general, or of a complaint in particular, he can raise it directly with the Secretary of State and refer to it in his reports, which are made to Parliament under Clause 25. There is little that would prevent the commissioner from looking at the ways the agency handles complaints, and from taking an interest in individual complaints where that is required.
	In conclusion, it is worth saying that we have listened seriously to what the noble Lord, Lord Phillips, has had to say about this. Without making a commitment to look at individual complaints, in the sense of setting up a complaints procedure for them, I can say—and we have not said this before—that we are happy to consider again the commissioner's ability to review the effectiveness of complaints-handling processes within the agency, and to see if we can add something about that to the Bill. I hope the noble Lord will find some satisfaction in that.
	We take this issue seriously. I finish as I started, by saying that the Government generally view complaints positively, as we know they can help us, if we look at those complaints with intelligence, to improve the quality of service over time. That is what we want to achieve here.

Lord Thomas of Gresford: I wish the Government would not use the word "customers". The people who are involved in being registered, and who have to carry identification cards—forcibly, after a number of years—cannot be described as customers at all. They are citizens.
	Those citizens may well have a grievance. The Minister says, "If you've got a grievance, you can complain to the people you've got the grievance with". Perhaps that is the sensible thing to do first of all, but surely you need a person who will take up the individual case; someone who is independent of the organisation about which you are complaining. We had this argument recently over the Children's Commissioner, because in Wales they sensibly set up a commissioner who can receive individual complaints and deal with individual cases. In England there are too many people, and it would be too expensive.
	If the Government are going to impose upon everyone this loss of freedom, as it undoubtedly is, surely they can afford to put in an independent complaints system, where a citizen—not a "customer"—who has a grievance can take that forward and hope for some redress from an independent person.

Lord Phillips of Sudbury: I am grateful to everyone who has spoken in consideration of this part of the Bill. I nearly said I was "grateful", and I think I probably am, for what the Minister said in his usual extraordinarily tentative way—but then I have learnt to see more hope in his tentativeness than perhaps one should. I am sure we will all look to what amendment the Government agree to on Report.
	I really do feel fierce about this, and do not think there should be any intransigence on at least referring to the role we all agree that the Government commissioner shall have. The question of whether he or she should be in the front line is something I will contemplate further, having heard my noble friend Lord Thomas, but, even if we got to the stage of having a clear and definite responsibility on the commissioner to look at the whole complexity, that would be a clear advance. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave withdrawn.
	[Amendment No. 229 not moved.]
	[Amendment No. 230 had been withdrawn from the Marshalled List.]
	Clause 24 agreed to.
	Clause 25 [Reports by Commissioner]:
	[Amendments Nos. 231 to 242 not moved.]
	[Amendments Nos. 243 to 246 had been withdrawn from the Marshalled List.]
	Clause 25 agreed to.
	Clause 26 agreed to.
	[Amendment No. 247 not moved.]
	[Amendments Nos. 248 to 251 had been withdrawn from the Marshalled List.]
	Clauses 27 and 28 agreed to.
	Clause 29 [Unauthorised disclosure of information]:
	[Amendment No. 252 not moved.]
	[Amendment No. 253 had been withdrawn from the Marshalled List.]
	Clause 29 agreed to.
	Clause 30 agreed to.
	Clause 31 [Tampering with the Register etc.]:
	[Amendments Nos. 254 and 255 had been withdrawn from the Marshalled List.]
	Clause 31 agreed to.
	Clause 32 agreed to.
	Clause 33 [Imposition of civil penalties]:

Lord Phillips of Sudbury: moved Amendment No. 255A:
	Page 28, line 42, at end insert—
	"( ) No such notice may be given unless the Secretary of State has sent to the defaulter written warning of his intention to penalise the defaulter together with brief details of the alleged default inviting the defaulter where appropriate to give written reasons within 28 days as to either why there has been no default or mitigating circumstances of any default."

Lord Phillips of Sudbury: Amendment—

Lord Williams of Elvel: Before the noble Lord moves the amendment, I should say that the Clock has not moved on, whereas the Bill has.

Lord Phillips of Sudbury: I do not know what to say to that—bash on, I think. Amendment No. 255A would require the Secretary of State, before imposing a penalty, to send the defaulter written warning of his intention together with brief details of the alleged default, so that the defaulter can say whether the Secretary of State has the wrong person or that he had a heart attack on the day he was supposed to attend an interview at Peterborough, or whatever else.
	We could be arguing about nothing because the code that is to be promulgated under the Act refers to warning letters and penalty notices. For those Members of the Committee who do not know what I am talking about, I am referring to the draft code of practice issued by the Home Office on the ninth of this month and sent to many noble Lords. However, I suspect that some noble Lords do not have a copy. Part 3 of the code, headed,
	"Warning letters and penalty notices",
	states:
	"Before imposing a civil penalty for non compliance with a requirement, it will normally be appropriate to send a warning letter setting out the reasons why the Secretary of State has reason to believe liability to a civil penalty has arisen and urging compliance".
	I think the Home Office drafted that after it saw my amendment. But, be that as it may, I do not mind as long as we have a fair procedure. It is plainly not fair to get a penalty before you have said your piece.
	We are now arguing about whether this vital provision should be on the face of the Bill or be left lurking in a code—a code, incidentally, which can be changed by negative resolution. It is such a fundamental right to be told what someone is proposing to penalise you for in order that you can say your piece before he or she makes a decision to penalise, my legal instincts tell me that it should be on the face of the Bill, albeit that even in the code it has the same legal effect. We are talking about presentation and what somebody looking at the Bill will see rather than what they might see if they read the textbook—I refer to the note at the bottom of page 311.
	We have had discussions on this before, when I raised in extenso whether the penalty regime is in fact a criminal code. It is not necessary for me today to enlarge on or repeat that, except in the context that if I am right in my feeling that this should be in the Bill, it certainly should be in the Bill if this is a quasi-criminal regime, as I believe that it is. Noble Lords may remember that on the previous Committee day I referred to some of the tests that the European Court will apply in deciding whether a code that calls itself "civil" is or is not criminal.
	Apart from her general response, I would be grateful if the Minister would answer three points. First, the code says that a warning letter will "normally" be sent—that is not good enough. If a penalty is in the process of being slapped on a citizen, a warning letter must be sent, and I see no exception to that. These are not small penalties; we are talking about penalties of £1,000 to £2,500. The notes accompanying the code say that the general level of penalty will be a quarter of the maximum so that if, for example, I refuse to have my photo taken when I get to Peterborough, or I miss the bus, I am in line for a penalty of £625, which is an awful lot of money to many in this Chamber, let alone some of our less fortunate citizens. I hope that where the draft code now says it will be "normally" be appropriate to send a warning letter, the noble Baroness will accept that it must be appropriate.
	Secondly, there must be a time limit for a response, and the draft code gives no such time limit. The citizen should have a clear and unbreakable right to send in his or her representations within a certain time. Finally, I would be grateful if the noble Baroness would clear up an uncertainty that arises from the draft code. On page 12, under the section about representations being made after the fine has been imposed, it says that representations may be made by "telephone or e mail" as well as by mail. There is no reference in the earlier part dealing with warning letters—letters that go out before the penalty notice is applied—to the right of the citizen to send in telephonic representations. If at the end of all this we are told that there will be a warning letter, there will be a time limit and there will be the possibility of responding by telephone, I will at least be much assuaged, if not wholly persuaded. I will do the Chamber a mercy if I sit down now, although there are all sorts of interesting things that I wanted to say. I beg to move.

Baroness Anelay of St Johns: My name is added to the amendment, which I strongly support. I will not repeat the arguments so clearly adduced by the noble Lord, Lord Phillips of Sudbury, but I have another question with regard to the code of practice statement that it would "normally" be appropriate to send out a warning letter. If the Minister insists on that remaining as it is, when would it not be appropriate to send such a letter?

Lord Thomas of Gresford: I very much support the amendment. Transparency is everything in this field. I will draw an analogy with the congestion charge. One of the interesting things that emerged recently in the litigation commenced by my noble friend Lady Walmsley in relation to the congestion charge was that Transport for London had a policy, which had never been published and no one knew about, that it could remit part of or the whole congestion charge in certain mitigating circumstances. No one knew that it had that discretion, and no one knew the circumstances in which it operated. It was the subject of huge criticism, both in the divisional court and by Lord Justice Sedley in the recent Court of Appeal decision.
	It is essential that the right of the citizen to know that he is regarded as a defaulter and that a procedure whereby he can put mitigating circumstances before the registrar or the Secretary of State should be crystal clear on the face of the Bill.

Baroness Scotland of Asthal: I hope that I can help the noble Lord. I should start by saying that the whole point of the civil penalties is not to provide punishment but a means of enforcement to get people to provide their biometric data. I must make it clear that if, at any stage in the process, the person says "I'll come quietly and have my biometrics taken", the penalty can be waived.
	We have always said that it will normally be appropriate to issue a warning letter to an individual who is considered to be liable for a civil penalty. However, taking up the point made by the noble Baroness, Lady Anelay, about when it might not be appropriate, it may be that those who persistently fail to meet their obligations under the Bill are considered no longer to require warning letters. In those circumstances, immediate notice of a penalty would suffice.
	Perhaps I should take the Committee through the likely scenario. First, a letter informing a person that he or she is required to register, and inviting them to make an appointment, will be sent. The bottom of that letter will state that if they fail to comply a civil penalty could be given. There would then be a second letter reminding the person of the first letter and their need to register, and would suggest an appointment time and invite them to attend or to rearrange that at a more convenient time. If there is no response to that second letter, there will then be a warning letter which will provide, pursuant to paragraph 3.1 and 3.2 of the code, a date for the person to attend. That will be the third opportunity. If there is no response to that warning letter, a civil penalty notice can be issued in accordance with Clause 33 and the secondary legislation made under it. Then there is the objection stage; then the appeal stage; and then the seventh stage is that the Secretary of State may bring proceedings in the civil courts. Then, right at the end of that process, when the Secretary of State has obtained judgment on a debt, it is for him to decide whether to enforce that debt. If the person complies during any of those seven stages, because the whole point of the civil penalties is to obtain compliance, it is within the Secretary of State's discretion to waive all or any part of that penalty.
	I recognise the issue that the noble Lord, Lord Phillips, raised in relation to the word "normally". We can certainly see how we can strengthen that draft code—it is only a draft. We have some considerable time and have produced it so that noble Lords would have an opportunity to examine it, make suggestions about it and we can work on it further.
	It is envisaged that the person will have a range of methods of responding to the warning letter. We have provided for a written letter so that we can have a record that it was sent appropriately and as a safeguard for the individual, as opposed to other methods which would make it much more difficult to verify that the communication had taken place.

Lord Clinton-Davis: I am sure that the answer will be in the affirmative, but can the person to whom the written notice is sent ascribe his or her reasons in a letter? That should be made clear.

Baroness Scotland of Asthal: Of course he can ascribe a reason. That is why I said that the first letter will not give the person an appointment; it will invite him to make arrangements to make an appointment. The second letter provided for in the procedure is to remind the person of the need to report, to give a suggested appointment time and to say, "If that is not convenient, can you notify us of another time?". The second letter provides the person with an opportunity to rearrange the appointment, and the measure comes into play only if there has been no response to the initial notice followed by the reminder.

Lord Clinton-Davis: Perhaps I did not express myself very clearly. Is it open to the person concerned to deal with the matter in correspondence rather than attend an appointment?

Baroness Scotland of Asthal: It is not. You have to give your biometric data and you cannot do that by correspondence. You have to attend, have your fingerprints and facial biometrics taken and, if necessary, have your eyes scanned. The provision gives you an opportunity to make an appointment for that. If there is any reason at all why you cannot go—if, as the noble Baroness suggested, you are ill or if you did not receive the letter or were out of the country—this provides an opportunity for you to tell the authorities the reason and to make another appointment to have your details taken. The whole purpose of this penalty is not to punish people; it is simply to ensure that they are able to take advantage of the opportunities given them to comply.
	I regret to tell the noble Lord that the code and the amendments to the code did not come about as a result of amendments put down by him. They came about because these issues were raised with my right honourable friend Des Browne when the first Bill came before the House and it was thought to be appropriate to put together a code for those purposes.

Lord Phillips of Sudbury: I am most grateful to the noble Baroness for giving way. She is getting into her favourite "auntie" act now. She is being supremely reasonable, nice and charming and saying, "Of course I wouldn't. Of course I will". But she is not going to run this ruddy system. It will be run by some faceless bureaucrat—I withdraw that at once; it will be some perfectly decent bureaucrat—and one does not know quite how it will work out. We are surrounded by systems that have gone wrong. We have to deal with the facts in the Bill and in the code, so the noble Baroness should stop soft-soaping us.

Baroness Scotland of Asthal: It is not soft soap because noble Lords will know that we have a PACE code. No one suggests that that is soft soap. We all expect professionals to comply with it, and if they do not do so there will be consequences. The noble Lord knows perfectly well that codes are not soft; they are quite hard-edged. They set out the standards that we expect from other people, and they set out the routine, the parameters and the consequences. That is why we think it is very important that there is a code. The appropriate place for these sorts of details is in a code and not in the Bill. The noble Lord knows perfectly well how difficult it is to get primary legislation when practical things have to be changed. The code is the appropriate place for these details, and noble Lords and others can contribute to that code. We agree with noble Lords that there should be an appropriate, convenient and flexible arrangement which will be utterly practical. What we have put in the code is utterly practical; it has teeth and it will bite. If I can be forgiven for not being "auntie", I think that this is something that works.

Lord Thomas of Gresford: Does the noble Baroness not agree that her code may be excellent as a code but the letter, the repeat letter and the letter after that will all be generated by machines and no human thought will be given to it? This is not like interviewing codes under PACE; this is a system like the congestion charge where a machine churns out a document and the consequences follow from that.

Baroness Scotland of Asthal: It is a framework which can apply efficiently and effectively. It will be the template used by those who seek to enforce these provisions. In that regard, we think that it is a very important safeguard because it will enable the public to know exactly what is expected of them, what the consequences are and what enforcement will be like.
	Contrary to the comments of the noble Lord, Lord Thomas of Gresford, about these issues not being made plain in other scenarios, in this scenario we are ensuring that the code and the way in which it will be applied are understood, and the individual citizen will know how to take best advantage of it.

Lord Phillips of Sudbury: I am most grateful to the noble Baroness for saying that. She was helpful on the warning letter, and I look forward to seeing a revision of the code; I am sure we all do. There were the other two points, however: putting in a time limit for a response; and making clear that a telephone response is available for the warning letter, as it is for the notice.

Baroness Scotland of Asthal: I would certainly be more than willing to look at those issues. As I said, the code was a draft. Noble Lords know that we have the advantage of a number of years before this is likely to come into operation, so we have plenty of time to hone it. I would be more than happy for us to have a preliminary bash at some of the additional issues, and bring them back.

Lord Stoddart of Swindon: The noble Baroness says that this is not punishment. Am I right in believing that until the scheme becomes compulsory—or for those people who are required to register, as far as the voluntary system is concerned—if people wish to give their details, they may do so, but if they do not, or fail to update them, they will not be subject to any penalties? I hope I have got that part right.
	When it becomes compulsory to be on the register and have a card, is there no room for conscientious objection? If there is no room, does that not mean that failure to comply will land a person in gaol? I have asked this question before, and the noble Baroness has not quite satisfied me that a person with a sincerely held conscientious objection who continually refuses to provide what he or she considers to be private information would not end up in gaol. I remain convinced that they could. If they keep on being conscientious objectors, they could be in gaol for the rest of their lives.

Lord Thomas of Gresford: Before the noble Baroness answers that, surely the noble Lord, Lord Stoddart of Swindon, is wrong when he says that while the scheme remains voluntary failure to put down certain details will not be an offence? If, for example, you apply for a passport, and you are required to register, surely all these penalties will come into operation at that point? As soon as you volunteer to be on the register, you have to give accurate information, subject yourself to the regime and be subject to all these penalties; otherwise the scheme would not work from the beginning.

Baroness Scotland of Asthal: First, I reassure the noble Lord, Lord Stoddart of Swindon, that there will be no imprisonment for failure to comply. This is a civil penalty, the punishment for which is a financial penalty which would have to be paid. Of course, there could be enforcement through the civil court for that judgment debt.
	To reiterate something raised by the noble Lord, Lord Thomas of Gresford, letters will initially be based on a standard template, but any reply would be reviewed by an individual and have to be fashioned correctly. I hope I have made that clear.

Lord Stoddart of Swindon: I really am sorry to interrupt again, and am most obliged to the Minister for giving way. I am still not satisfied that a person could not be put in gaol. If you have distraint on all a person's possessions, and put him out of his house because of his conscientious objections, what happens then?

Baroness Scotland of Asthal: The Debtors Act 1869 abolished common law powers to imprison for debt, subject to various exceptions. The scope of those exceptions was further amended by the Administration of Justice Act 1970. The net result is that while it is still possible to be committed to prison for non-payment of court orders in relation to fines or various specified payments such as income tax or maintenance, there is in the Government's view no common law or statutory power to imprison for non-payment of civil penalties. Had the Government intended there to be such a power, the Bill would have provided for it in explicit terms. For those reasons, there is no risk of being sent to prison as a result of the imposition of these civil penalties. I can therefore give the noble Lord, Lord Stoddart, that assurance.
	I hope he can feel more content with that comprehensive response than with the telegraphic response that I gave earlier.

Lord Forsyth of Drumlean: I wonder whether the Minister can help a non-lawyer. Is she saying that the noble Lord, Lord Stoddart, need not worry about such people going to prison but that they might lose their house?

Baroness Scotland of Asthal: I am saying that enforcement proceedings can be taken in relation to the payment of fines. I am sure that the noble Lord delights in being mischievous, but I do not wish to play.

Lord Forsyth of Drumlean: I am most grateful to the Minister. I do not regard this as a game. The noble Lord was making a serious point. What happens if someone refuses, for whatever reason, to go along with the system? The fact that the Minister is making a distinction between the civil law and the criminal law makes it sound as though it would not be as bad as going to prison. But there are worse things than going to prison if it means that you would lose your home and your assets. I am sure that the Minister would not want to mislead the public, but we should be clear that the penalties, if followed through, are severe.

Baroness Scotland of Asthal: Of course I hear what the noble Lord says. I have been as crystal clear as I can be in relation to these issues and I have also said that the way of avoiding such penalties is simply to comply. I have made it clear that the Secretary of State can waive all or any penalty in relation to this matter because these provisions are provided simply for compliance. I have answered the question posed by the noble Lord, Lord Stoddart, three times to the effect that imprisonment will not follow.

Lord Phillips of Sudbury: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	[Amendments Nos. 256 to 259 had been withdrawn from the Marshalled List.]
	Clause 33 agreed to.
	Clauses 34 to 36 agreed to.

Baroness Noakes: moved Amendment No. 259A:
	Before Clause 37, insert the following new clause—
	"ESTIMATE OF COSTS
	(1) Section 37 shall not come into effect until—
	(a) the Secretary of State has submitted to Parliament a detailed estimate of the costs of implementing the powers contained in this Act (to be known as "the Cost Estimate"); and
	(b) each House of Parliament has approved the Cost Estimate.
	(2) "Costs" for the purposes of this section shall include all costs whether of a capital or revenue nature actually incurred or estimated to be incurred by—
	(a) the Secretary of State;
	(b) all other Ministers of the Crown;
	(c) Government departments;
	(d) a Northern Ireland department;
	(e) the National Assembly for Wales;
	(f) any other person who carries out functions authorised by this Act.
	(3) The Cost Estimate shall cover the period—
	(a) from 26th April 2004 to the date that the Cost Estimate is prepared; and
	(b) 10 years after the date that the Cost Estimate is prepared or such longer period as shall be determined by the Secretary of State,
	and shall be analysed into each of the financial years ending 31st March covered by the Cost Estimate.
	(4) The Cost Estimate shall be examined by the Comptroller and Auditor General who shall prepare a report on it and shall lay the report before Parliament."

Baroness Noakes: I had intended to take no part on the Bill whatever. So far as these Benches are concerned, it is in the capable hands of my noble friends Lady Anelay and Lady Seccombe. However, on the first day of Committee, I happened to be in the Chamber—as one does—and I came across a fascinating debate on the costs of the national identity register and identity cards in connection with Amendment No. 1 tabled by my noble friend Lady Anelay. Many good questions on the subject of costs were put to the Minister from all sides of the Committee. However, it is fair to say that the Front Bench opposite gave little of substance in response.
	The Minister has since sought to provide further information in a letter circulated to Members of the Committee on 12 December. While nearly six pages of the letter were devoted to costs, not much light was shed. Rather, the letter concentrated on the information the Home Office would not give. Therefore, in consultation with my noble friend Lady Anelay, I have tabled Amendment No. 259A to try to make some progress on the costs associated with the Bill.
	The amendment is simple in concept. Subsection (1) says that the Government may not make use of the ability to charge fees in Clause 37 until they have satisfied both Houses of Parliament as to their estimate of the costs that will be involved in the implementation of the powers in the Bill. The Secretary of State could, in theory, start to use the powers in the Bill to place information on the register and to issue ID cards without making any charges, but I have judged that the Secretary of State would not, in practice, want to do that and would not have budgetary cover if fees could not be charged.
	The Minister may well say that a delay on the fee-charging provisions of the Bill is a curious way for Parliament to get some information on costs, and it would probably be better if Parliament's satisfaction on costs preceded some of the other powers contained in the Bill. I intend to research that before we reach report. The Minister will therefore be aware that I regard Amendment No. 259A as a probing amendment for the purpose of today's debate in Committee.
	In a moment, I shall explain the contents of the rest of the new clause, but it may help noble Lords if I put it in context. The Government have given very little information to date about costs. We have been given one figure of £584 million, which seems to be some kind of annual cost, averaged over a number of years, possibly 10. Any attempt to elicit further information has not been successful. The Government have broadly rested on an assertion that it would compromise their commercial position if any more information were given either about Home Office costs or about the costs that other departments might incur. We are pretty sceptical about the commercial confidentiality argument but, more importantly, we regard it as unacceptable that the Government have introduced legislation that will have far-reaching effects on the citizens of this country without being prepared to discuss the full costings with Parliament. I cannot think of a precedent for this.
	Realistically, we know that the Government can be obdurate on the matter of denying information to Parliament. Parliament in turn has two possible responses. The first is to defeat the Bill completely. The Bill has already completed its passage in another place and so your Lordships' House would need to set itself in opposition to another place. For those on these Benches, that is not an attractive prospect, especially for a Bill that has, to some extent at least, the backing of a manifesto commitment.
	The second course is the one that underpins my amendment. It is to give the Government the benefit of the doubt, so far as legislation is concerned, but, at the same time, to ensure that once the costs are better known, or are, at least, in a shape that has fewer confidentiality constraints, Parliament will be able to scrutinise the costs properly before the powers in the Bill take full effect. That seems to us to be a fair and reasonable response to the Government's obstinacy.
	I shall now turn to the detail of my amendment. Subsection (2) of the new clause defines what we mean by costs. First, it covers both capital and revenue costs. There was some confusion in the earlier days of Committee about whether the Government's own estimated annual costs of £584 million covered both revenue and capital costs. The Minister repeatedly said that the £584 million is the annual running cost, which implies that it includes nothing for capital costs and, possibly, other up-front costs. The Minister said that she would give no details to the Committee on capital costs, but she did say:
	"Looking over a 10 to 15-year period, the operational costs . . . are far greater . . . than the capital cost of initially setting up the system".—[Official Report, 15/12/05; col. 988.]
	So, on the Minister's own analysis, that places the capital costs at a figure somewhat below the range £5.8 billion to £8.7 billion. That still implies a very significant figure, but somewhat less than some others believe will be involved. I am not today going to go into the analyses produced under the aegis of the London School of Economics. Suffice it to say that the capital costs are a major matter of dispute. That reinforces the need for Parliament to look at precisely what is in those figures and how allowances are made for capital spend, both during and after the initial phase of implementing the Bill.
	There is, however, a mystery about capital costs. In a Written Answer to the noble Lord, Lord Barnett, whom I am glad to see in his place, the Minister said:
	"The cost of depreciating the initial capital costs have been included in the annual operational costs".—[Official Report, 30/11/05; col. WA 38.]
	That implies that the estimate of £584 million includes something for capital. We do not know how much and we do not know what depreciation methods or asset lives have been used.
	As I have mentioned, the noble Baroness hinted at orders of magnitude. Suppose that capital costs come in at the lower end of the 10-year figure for annual costs and amount to, say, £3 billion. That would be less than half the cost of the current NHS IT programme, so it is probably on the light side. Let us further generously assume that there is a 10-year life for those capital costs. Ten years is a very long time when talking about IT systems, but let us use it as an example. This implies annual depreciation costs of £300 million a year, which would leave non-capital costs within the £584 million of around £284 million.
	But that does not make sense because the Passport Services' plans for 2006–07 estimate that its total costs will be £397 million. So is it the revenue costs that are the problem or the capital costs? The Minister will see why so many of us are concerned to understand the financial dynamics of the register and of ID cards. Subsection (2) will ensure that the Government disclose all the costs, including capital and initial costs. But the subsection goes further and makes it clear that the costs included in the costs estimate cover the whole of government. The Minister made it clear on the first day of Committee that the costs she was talking about were partial, covering only the costs of the Home Office. She said that,
	"the figures for other departments are for them; that they will have to find that money from their budgets; and that I am unable to tell the Committee the figures that other government departments will need to find for that".—[Official Report, 15/11/05; col. 986.]
	We are clear that that is not acceptable. The Minister should always speak for the whole of government and Parliament is entitled to see the full financial consequences for the public purse. As I understand it, the Government have never said exactly how the register will be used, but it is clear from the Bill and earlier debates that the Department for Work and Pensions, the DVLA and HM Revenue and Customs will use the register—and I understand that the ID project now subsumes the National Population Register, which the Office for National Statistics wants. It does not take much imagination to produce a long list of other departments which would wish to use the register. Indeed, I understand that the Home Office's procurement strategy sounding document identified 265 government departments, and I hope that the Minister will be able to confirm or elaborate on that when she responds.
	It is important to understand that I mention other government departments not only for the costs that those departments will incur but also for the costs of the Home Office itself. That is because the design of the register, and therefore the cost of the register, will have to take account of all potential users of the register. I should mention in passing that there will also need to be clarity about the non-governmental users of the register because that too will drive the costs of the system. The procurement strategy document I referred to earlier cites 44,000 private sector organisations being accredited for this purpose. I hope the Minister can say something about that as well today.
	Subsection (3) states that the cost must cover a period of at least 10 years, although the Secretary of State can specify a longer period. If the Minister thinks that a longer or different period should be chosen, I am open to offers on that. Also in subsection (3), the start date for the cost estimate has been set as 26 April 2004. As I am sure that the noble Baroness is aware, I chose that date because that is when the Government published their first Identity Cards Bill, which seems to represent a reasonable start point. Again, if the Minister thinks that an earlier or later date would be appropriate, I would be happy to reconsider that.
	Lastly, subsection (3) requires the cost estimates to be analysed into financial years. That is important because the only figure that the Government have given so far is the £584 million of annual costs. As I mentioned earlier, that is some sort of average, but we know that costs never occur in such neat bundles. For example, the scheme will start as voluntary and progress to be compulsory. It will be important to see the impact of that on costs. Capital costs are lumpy, as are initial and set-up costs. Also, costs such as maintenance do not occur evenly over time. I imagine that the Government have made some forecasts of unit cost reduction based on learning or experience curves. Wage inflation alone will mean that the salary cost element, even when deflated by the GDP deflator, will not be the same each year over whatever period. Seeing how those costs fit into each financial year will be an important part of Parliament understanding the Bill's impact on government expenditure.
	The final subsection of my new clause requires the Comptroller and Auditor General to examine the cost estimate and report on it to Parliament. Parliament is entitled to some external verification of the numbers. I am aware that the Home Office commissioned a review by KPMG. For the information of the Committee, I mention that I am a former partner in KPMG but, nevertheless, claim no special merit for a report bearing its name. We have not seen the full report or the terms of reference, but it is clear that, even if we did, it would not amount to an audit of the figures, which is what my amendment requires.
	I am conscious that my amendment deals with only one side of the cost/benefit equation. The Government have given a broad overview of benefits that the Home Office foresees from its perspective, as well as some benefits potentially accruing elsewhere. The amounts indeed appear significant. The Minister may find my amendment lopsided in not seeking to ascertain the truth about the calculation of benefits but, as I said, this is a probing amendment for the purposes of our discussion in Committee and I hope to consider our discussion carefully with a view to tabling an improved amendment on Report. I beg to move.

Lord Barnett: I share the noble Baroness's concern about costs. I shall try to be brief in my few remarks. If I may say so, with the greatest possible respect to noble and learned Law Lords, I note that in their most recent report, every Law Lord said that he agreed with the first Law Lord and that there was no need to add anything else and then proceeded to do so. As I hope that, for a change, this debate may not include barristers, perhaps we can keep it relatively brief.
	Unlike the noble Baroness, I was not a partner in KPMG; mine was a much lesser firm than that in which the noble Baroness was a senior partner. As I said, I share her concern about costs. My noble friend, who has replied to so much of our debate and to the Written Questions that I have tabled, is so courteous and such a great member of your Lordships' House, especially in replying to debates, that I am reluctant to be critical in any way.
	I tabled around 14 Written Questions following my brief intervention on the first amendment of Committee stage. I will not bore the Committee with the Answers that I received, for two reasons: first, I wish to keep my remarks brief, and, secondly, the Answers told us nothing. Indeed, some of my Questions have not yet been answered, which is surprising because they were put down over a month ago. I should have thought that the answers were readily available. I asked, for example,
	"what is the assumed number of identity cards that will be issued over the first ten years".
	That information must have been taken into account in arriving at the cost. Secondly, I asked,
	"what is the assumed number of new passports that will be issued over the first ten years".
	Again, that assumption must have been made in arriving at the estimate of cost. I also asked,
	"in arriving at the estimated annual cost of the implementation of the Identity Cards Bill, what is the assumed number of passport renewals over the first ten years".
	That information must be readily available. I am sure that my noble friend will be able to tell us.
	The final Question, to which I had an Answer today, was whether the Government will,
	"publish an analysis of their estimate of the annual implementation costs of the Identity Cards Bill of £584 million".
	I will not read out the Answer because it was very long and told us nothing at all. As the noble Baroness, Lady Noakes, has indicated, they could not give us the answer because it would compromise negotiations. I, too, find it difficult to understand the argument about compromising negotiations. If I were involved in any negotiations, I would have no wish to have anybody tell the other side anything at all, but we have already told them the total cost. They would have to be somewhat idiotic, especially if they are advised by KPMG, and it would be surprising if they did not work out the rough estimates for particular aspects of the negotiations. I find that Answer very strange.
	Equally, I find the noble Baroness's amendment strange. I was glad that at the outset she described it as a probing amendment because clearly it was drafted by somebody, if I may put it this way, with no experience in government whatever. I declare a past interest as a former Chief Secretary to the Treasury for five years. Contrary to the idea that even the Comptroller and Auditor General can get his hands on an "estimate", it is, to put it mildly, a bit difficult. I found it difficult to get estimates of all kinds of expenditure, especially involving the intelligence services. That was quite impossible for a Chief Secretary who had his fingers on all the funds made available to any department. There is an idea that the Comptroller and Auditor General will somehow be able to find the answer, but it will not be easy to find the answer for "estimates". Indeed, by the end of the timescale referred to in the estimate, they would be no longer estimates but actual costs, I assume.
	One should emphasise, as the noble Baroness did, that if you count depreciation, which is how accounts of government costs are now published, they would not by their very nature include the cash costs of the capital expenditure. We should have that figure, so maybe my noble friend will be able to give us it today.
	I remain very worried. I hate to put it this way, but I wonder whether the Treasury agrees with those estimates or has the faintest idea whether they are likely to prove actual costs in due course. Knowing that all members of the Government agree with one another on everything, I assume that the Chancellor and Chief Secretary have agreed with the Home Office's estimate of costs—no doubt my noble friend will be able to tell us. Indeed, they may have even collated the costs of other government departments as well; that is to say, the Treasury may not even have told the Home Office.
	It will be obvious to noble Lords that I remain to be convinced that £584 million will be the final cost. I look forward with great interest to my noble friend's reply.

Lord Crickhowell: I have added my name to the amendment moved by my noble friend. The noble Lord, Lord Barnett, was the first person on the opening day of Committee to ask questions about costs. That led the Minister into a pretty miserable two hours. On 12 December the noble Baroness wrote a letter addressed to my noble friend Lady Anelay and copied to all noble Lords who took part in that debate. Over six pages the letter sets out a preview to the response that the Minister will make to this debate. However, it will not put out the fire that scorched her on the earlier occasion. Indeed, it may well add fuel to the flames.
	As my noble friend has said, the central argument is that information about capital costs estimates would prejudice the Government's ability to obtain value for money. I served on the committee looking at the Constitutional Reform Bill. When it was debated in this House, the noble and learned Lord the Lord Chancellor set out a precise costing for the new Supreme Court. He did not appear worried that doing so would prejudice getting good value for money. Indeed, the very fact that the noble Lord, Lord Barnett, an extremely experienced Chief Secretary to the Treasury, thinks it appropriate to ask for this kind of information reinforces my belief that it will not prejudice the Government's ability to secure value for money.
	I asked a former Chancellor of the Exchequer what he thought of the response given in the Minister's six-page letter. On this point he said that he thought the argument was nonsense, but that if we did get the information, no one would believe it. That is almost what the noble Lord, Lord Barnett, observed a few moments ago. It is not impossible for the Government to give details of the principal areas of expenditure without breaking them down into the precise contract items that could prejudice the procurement process. I shall take one example: the facilities for the national identity register building. In a different incarnation I tendered for a similar project. I am confident that there will be separate cost items and tenders for the building itself, probably several for the IT facilities, for communication links, for security and for a good deal else besides. We can reach a total cost without prejudicing the need to secure value for money.
	The noble Lord, Lord Barnett, said that my noble friend has no experience in government. I have had a certain experience in government. I recall sitting in endless Cabinet committees during which my noble friend Lady Thatcher would go over proposals of this kind. Her paper would be marked with yellow ink and there would be a brief from the Treasury. I do not believe for a moment that she would have given the go-ahead for this scheme without knowing in detailed terms what the likely costs would be. Even in these days of sofa government, I find it hard to believe that the Treasury has not probed into this pretty thoroughly and that the successor to the noble Lord, Lord Barnett, was not a little anxious. It may be that the Prime Minister—

Lord Bassam of Brighton: Perhaps the noble Lord would assist me. He has made great play of how the noble Baroness, Lady Thatcher, would go over costs in detail. Did she go over the costs of setting up the poll tax?

Lord Crickhowell: As I have already observed on an earlier occasion, the noble Lord's question gives me the opportunity to remind him that this Bill may well prove to be the Government's poll tax. He ought to keep off that one.
	The Prime Minister may not have probed the detail—he is too busy handing out billions to the European Community—but I find it hard to believe that the Chancellor of the Exchequer—and even Permanent Secretaries and the various government departments—is not interested in what the total costs are going to be. So either the Government have no idea or they are deliberately withholding the information in order to give a false impression to Parliament and the people.
	On page 5 of the letter we are told that public sector organisations may not need to invest, at least in the first years, and may not require readers for the card. My noble friend suggested there would be a large list of organisations which would need to use them. I pointed out in earlier debates that the Foreign Office will need the biometric input equipment in order to issue passports around the world. The Government have already made claims for the financial benefits which suggest that HM Customs and Revenue, the Department for Work and Pensions and the police forces will all need readers. There is a casual comment that integration could be absorbed into regular business updates. But all that will require a very secure system, which is likely to be very expensive. You cannot have communication with all these private and public organisations without an unprecedented attention to security.
	As has been pointed out, there is a reference in the response to the KPMG report, but that reference omits to say that KPMG queries assumptions such as the 10-year card life, biometric costs and running and depreciation costs for the mobile centres. The Prime Minister has said that no government would go ahead if the cost to the public was seen by them to be unreasonable. In the light of the Government's record, in my view, Parliament should not allow the Government to proceed until Parliament is satisfied that the cost to the public will not be unreasonable.

Lord Phillips of Sudbury: My name is on the amendment. The issue of the estimated capital costs of establishing and integrating as well as then running the identity card scheme could not be more important constitutionally. That is a crucial factor in legislation at any time, but with a project such as this—untried, grandiose in world terms let alone national ones, and affecting every adult member of the population in due course—it is paramount. In our system, where there are few separations of powers between the legislature and the executive, the role of opposition parties in this situation is clear. But holding any government effectively to account is even more an anticipatory exercise than one of auditing the aftermath. Prevention, as usual, is much better than cure, if cure there be.
	Although Ministers opposite may raise an eyebrow when they hear it, one does try to put oneself in their shoes over issues such as this. So is it reasonable for us to be adamant on the issue of costs? Is it not enough to rely on the partial statistic that the Government have provided bit by bit? The questions are self-answering. The Government have refused to give broad, comprehensive estimates—and I refer particularly to the start-up costs—on grounds that,
	"the estimates are commercially sensitive and to release them may prejudice the procurement process and the Department's ability to obtain value for money from potential suppliers".
	That is, I believe, untenable. Let us be clear. If any government on any Bill, of whatever importance and scale, can deny MPs and Peers key estimates without which the legislation will be no more than a financial pig in a poke, we are in real constitutional trouble. If the choice really is between prejudice to a procurement process and prejudice to proper parliamentary deliberation and legislation, the latter is overwhelmingly more important. The cart must not be put before the horse.
	Furthermore, the London School of Economics group has discussed the commercial sensitivity of opposition requests with more than 20 of the key private sector tenderers, and both they and the LSE group reckon that any sensitivity is all but non- existent. I believe that the intervention of the noble Lord, Lord Barnett, was to the same effect. What will rule with the commercial players is the sort of prices they expect the competition to quote and the value to them of the contracts concerned, which are potentially enormous and will put them in a world-wide lead. Refusal to supply Parliament with key cost estimates in a Bill such as this damages the legislative process profoundly. Politics, after all, is about choices. If ever there was a Bill where that was relevant, it is the Identity Cards Bill. Claims made by the Government as to its beneficial effects on crime, social security fraud, immigration abuse, national security and whatever else have been widely challenged. The recent remarks by the former head of MI5 highlight just one aspect of that.
	In order to legislate sensibly we need to be able to compare alternative uses for the huge sums which the ID card scheme will devour in terms of increasing, for example, police numbers, the number of entry port officials, social security factual checks and so on. The difference between the latest LSE thinking, which is still short of a worked-out revision of its cost estimates, of between £19 billion to £24 billion over 10 years, and the £6 billion to which the Government have owned up—confined as it is to the cost of issuing identity cards and passports over the same period—is hopelessly wide. The House, the country and the taxpayer ought to have the best available estimates.
	It is not as if the ID scheme is straightforward. It is novel in world terms. Such a national, central, compulsory, complex database is unprecedented. Surely we are wise enough by now to realise that government estimates of the cost of such ambitious projects need the most sceptical scrutiny. Whether it is the Scottish Parliament, the Dome, the Eurofighter or any weapons system you care to mention, the writing has been on the wall for decades. It says, "Legislator beware".
	I accept that it is difficult to estimate costs in these circumstances, but that is precisely why Parliament must have the best "heads-together" assessments. That is particularly the case here, where the Government have hung their hat on the scheme, against widespread opposition, and may, very humanly, be tempted to gild the financial lily.
	Lastly, I should like to say a word in praise of the LSE group. It was wrong of the Government, in this House and in the other place, to criticise its work in the way they did, accusing it of lacking rigour and, indeed, questioning whether it was an LSE report at all. Sir Howard Davies, director of the university, has authorised me to quote from a letter he wrote to me recently in which he said:
	"we have had some extraordinary responses to our work from the government, who appear to think that they can deal with a Report from a group of academics from a University in the way they would a submission from the official opposition".
	This House, and indeed the country, should be immensely grateful to the LSE group. It has endeavoured, with one hand tied behind its back in terms of government co-operation, to do the work that the Government themselves should willingly have done and even now should do.
	Further, in the correspondence to which I have already referred, the Government have made it clear that they have not obtained from any other government departments the set-up and integration costs of utilising the ID card database. So all the figures with which we have been provided have been confined to Home Office expenditures. What we do know from the letter from the noble Baroness is that nothing is allowed in the £584 million annual running costs for the set-up costs or initial capital outlay, the proposed online identity verification service, the necessary enhanced and enlarged IT infrastructure capacity and so on.
	I have spoken at large to the amendment. No doubt aspects of it could be improved, and indeed the noble Baroness, in so well moving the amendment, said as much. I still do not see why the Government could not at least open the workings of the ministerial committee on identity cards, chaired by Tony McNulty, to Opposition MPs and Peers, so that these matters can be looked at in detail and in confidence. LSE experts should be admitted to that process, again in confidence, to bring their immense body of knowledge to the aid of the general endeavour. At the end of those deliberations, Parliament should have before it the key all-in statistics, with some of the finer print known to, and understood by, Members of this and the other place. That should allow us to do our duty in a proper way.
	The only thing that strikes me as being constitutionally and practically unacceptable is to allow the Bill to proceed on the present, semi-blind basis.

Lord Bhattacharyya: There is some good news in the amendment: it seems that the noble Baroness, Lady Noakes, and others who support the amendment no longer have any major concerns over the principles of the introduction of the system of national identity cards. If not, we would not have moved so far.
	The concern expressed in the amendment is the cost of implementing ID cards. I am a technologist; I have a huge laboratory where we carry out image analysis and scanning. We are also experienced in implementing big IT systems throughout the world. The new clause could only be supported for one of two reasons—either the project is of such tremendous complexity that the Government have to be protected from getting lost in a technological maze, or it is potentially so costly that the Government have to be able to monitor costs so that they do not spiral out of control.
	Today we are being asked to believe that the project of modernising our system of passports to incorporate biometric measures and to expand their coverage to ID cards for the 20 per cent of the population who do not have passports is so hugely complex that the Government cannot be trusted to carry it out without the most zealous financial oversight. It is, after all, just a marginal cost. The system has to be there.
	First, let us consider the technology. Most of the technology behind any system of biometric ID card implementation is far from new. Most of the tools of biometric recognition—fingerprints, facial or irises—have been in use for many years. The technology behind image recognition has been there for the past 30 or 40 years. We are not travelling blind when it comes to using this technology.
	In the United States, the FBI has the largest biometric database in the world in its Integrated Automated Fingerprint Identification System. It contains the fingerprints and corresponding criminal history information for more than 47 million subjects in the Criminal Master File. It may be the wrong example to give, but I want to demonstrate the scale. The system provides automated fingerprint search facilities, latent search capability, electronic image storage and electronic exchange of fingerprints and responses 24 hours a day, 365 days a year. The speed of retrieval is obviously determined by the technology of implementation.
	Today, the most recent of these technologies—iris recognition—is being used in Afghanistan for identification purposes. I am sure that all Members of the Committee are very aware that Afghanistan is not renowned for being at the forefront of the use of high technology. There are many IT systems in operation or in development many times more complex than the proposed ID card system. The upgrade of the national air traffic system had some minor glitches at the outset—which of course our press loved—but it is now working extremely well. This year, our national air traffic control system will control all traffic movements over the United Kingdom and the eastern part of the northern Atlantic. It will ensure the safety of some 2 million aircraft movements, carrying some 180 million passengers.
	Another example is the supercomputer at the Met Office, which has been very successfully implemented. New massive computer systems are collecting and modelling huge amounts of complex data work. It does not make the headlines if they work. It is the ones with problems, such as some in the public sector, which get reported.
	There is nothing hugely complex or difficult about the data collection or the management system that a national ID card system will entail. So what about the cost? Biometric forms of identification are coming. The US is already well down the road and Canada is not far behind. And only this month, the European Union announced that by 2008, the use of biometric data will be included in all passports issued by member states. The technology of image acquisition, storage and biometric data retrieval has to be undertaken anyway, and it is largely a proven technology. The expenditure will have to be committed for passports anyway. Currently, the Passport Office spends almost £300 million a year and the DVLA almost £500 million a year. As the market develops, the cost of the technology will fall. It is only because the market is still very small that the cost of the technology is high.

Baroness Ludford: The noble Lord mentioned the EU passport scheme. As the UK is not opted in to the scheme, we are not obliged under EU law to have biometrics in our passports.

Lord Bhattacharyya: If there is a convergence of technologies and information for passports, we will have to be there.
	This does not mean, however, that we should be complacent about the management of the implementation of this type of system. The majority of the problems we have been talking about concern the management of the implementation. It is not about the technology and people asking why this or that has not worked—it is entirely due to the management of the implementation. For it is on project management that success or failure depends. Successful systems have proper project management; the unsuccessful ones do not. We have to go through a series of processes to ensure that the project management of such an important tool is absolutely right. When it comes to the implementation of large-scale computer systems, the technology today is pretty straightforward. In addition, the cost of storage is falling dramatically. PCs today have the memory of mainframes 20 years ago.
	We have to have a proper process of implementation, one which includes the development of demonstrators and pilots to model the processes, enabling proper specifications to be drawn up. Problems occur when the specifications are not right, when vendors promise certain things and there is a mismatch. That is when the cost escalates. We must also ensure that staff are trained properly in the use of the technology. At that stage, all bugs and snags can be removed before we move to the hard specification of the systems architecture.
	The final decision about putting biometric systems to work depends almost entirely on the application's purpose. Do the advantages and benefits outweigh the disadvantages and costs? I believe, on what we know now, that this is almost the case. In the very near future, as we move into the digital age, this type of characterisation and identification will be commonplace, either in the public or the private sector. Digital accurate identification of an individual has immense value. It will revolutionise our healthcare systems, ensuring patients receive the best care for their condition. In New Jersey, I saw hospitals where the identification system shows what drugs people can have and all the side effects. Every patient is monitored on that basis. The cost of healthcare goes down dramatically once you know what individual patients are susceptible to.
	The system will combat fraud in our tax and benefit system. Of course we must ensure the security of the data storage and retrieval system, but that is not rocket science. It is very simple. There is enormous security in the data already kept, although nothing is 100 per cent sure in science. So the benefits of the technology are tremendous. At worst, the cost is minimal; at best, it is marginal. We have to work on that stage.

Lord Thomas of Gresford: Did the noble Lord say that he had personal experience of the use of these machines and, if so, how much does a single iris reader cost?

Lord Bhattacharyya: The cost depends entirely on volume. We use experimental machines in laboratories and we buy in one or two. One reader costs about £2,500. As in the case of plasma televisions and mobile telephones, the costs will come down dramatically as the volumes go up. I am sure that the Committee will see that that will be the case.
	We were not very ambitious when we said what data the identity card should hold. I therefore ask noble Lords to reject the amendment and any return to the quill pen and the Bow Street runners. It would deny our security services the best possible system of identification.

The Earl of Onslow: The noble Lord, Lord Bhattacharyya, made at least three mistakes in what he said. First, he said that some of us on this side had dropped our objections to the Bill. He is looking at one noble Lord who, the more he hears about the Bill, the more he objects to it. Secondly, he held up the air traffic control system as an example of how we should do things. I suggest to your Lordships that the estimated costs of the air traffic control system were provided and that they were hopelessly wrong. The air traffic control system went way over budget. Thirdly, he said that the complexity of the system was the reason for querying the cost. For that reason alone, the amendment is justified. I lay aside the increase in cost of the Inland Revenue computer and that of the National Health Service. I had a friend who worked on the Foreign Office's computers. He said that the level of inter-office back-biting and the lack of understanding of the officials who were installing the machines were horrifying. I accept that that is anecdotal and not normally accepted as real evidence, but it fitted in with what one had heard.
	The idea that Parliament gets its estimates right is laughable, from the time when Edward III went way over budget on Windsor Castle. I accept that that is slightly too recent for members for the Liberal Party. More up-to-date examples include the Scottish Parliament, the Millennium Dome—

Lord Bhattacharyya: The specification of the national air traffic control system was wrong. It did not identify the complexity of the system. I know that because I have known for a very long time the man who was responsible for it. That is why it is important in this case that we conduct pilot schemes and get the specification right from the very beginning. Only then will we be able to get our costs under control. The costs of a complex system such as the national air traffic control system may have gone up because of the incorrect specification, but it was implemented without any major glitches. Had it not been, we would all have had crashes.

The Earl of Onslow: The noble Lord has just made my point for me. He said that the specification was wrong; the costs were wrong; the estimates were wrong. This is exactly what we are complaining about. The more he speaks, the more he makes the case for the amendment.
	I do not have to go on numbering the mistakes that the Government have made, because I am a tactful and kindly soul and do not want to tell them about too many of them. Estimates are provided for battleships and buildings, and, above all, Parliament has to vote the supply. That is what the House of Commons is for. It ought to know how much money it is voting for and why. Our forefathers died to make sure that Parliament gave the King money only if it said so and if it knew what its specific purpose was. This is a fundamental constitutional clause. The Minister may sigh. She has heard me give this lecture previously. I will give it again and again and again, because this Government do not understand that simple point. Parliament exists to control the executive, to give it the money to do its work and to tell it how much it needs. That is why this amendment, or something very like it, is of fundamental importance.

Lord Macdonald of Tradeston: I support what the noble Lord, Lord Bhattacharyya, said about the importance of process. I was delighted to see the Bill arrive with a detailed regulatory impact assessment. However, the Bill has now gone through the Office of Government Commerce gateway process, which was introduced simply because so many projects—particularly those which we had inherited from previous administrations—were running over budget. We also inherited other processes such as PFI from the previous Conservative administration. Indeed, through implementing that properly, the majority of projects now come in on budget and on time unlike in the past.
	So process is important. As well as the Office of Government Commerce gateway process, I see that the department has put in place an independent assurance panel to provide additional oversight of the programme. I know that the noble Baroness, Lady Noakes, has a high reputation in matters of financial analysis, but I hope that the Home Office business case, as analysed by that KPMG independent review, would meet even her own high standards. The review concluded that,
	"the methodology used to cost the ID cards proposal is robust and appropriate for this stage of development. We recognise, in the areas we reviewed, the high quality of the Outline Business Case and supporting information that has been produced to date by the ID Cards Programme".
	The noble Lord, Lord Crickhowell, pointed to KPMG's concerns about sensitivity analysis and so on, but we also should note that a summary of work in progress has been published by the Home Office in response to those KPMG points.
	As has been said repeatedly, ultimate scrutiny rests with Parliament, but the scheme will go through the Treasury first. Having recently been involved in financial reviews under the present Chancellor, I can assure noble Lords that the relevant departments will require a robust business case and cost/benefit analysis before they get past the Treasury's scrutiny. We should bear in mind in this place, as always, that the other place will approve the estimates of government expenditure.
	On the question of commercial confidentiality, I am sure that the Government will make information available where possible. If it is as important in constitutional terms as the noble Lord, Lord Phillips, said, it certainly will be available. But it is also prudent that you do not provide such detailed costings as to give an exact benchmark of how much you are prepared to spend to contractors. You would perhaps be putting too much faith in the competitive process in that regard. There would be situations where some element of discretion might be sensible.
	As for the requirement that the costs incurred by other departments over 10 years be estimated, that is simply impracticable. The huge variety of applications across—we are told—200 departments and agencies will make it an incremental process. It will take place by department and agency according to what the Treasury will allow. It will also be included in the annual capital expenditures of those departments. As the noble Baroness, Lady Noakes, said, the depreciation of IT would normally take place over a period of less than 10 years, and the capital investment programme has been greatly increased in recent years. So money is available as the technological upgrades go through.
	So we should not say, as the noble Lord, Lord Bhattacharyya, implied, that noble Lords on the Opposition Benches should dismiss the proposals because they are utterly unaffordable. It will be incremental, because this is not only about the delivery of more efficient public services everywhere at once. The principal points that have been made were about the establishment of a firm identity—

Lord Phillips of Sudbury: It is not my case—and I do not think that it is anybody's—that this proposal is "utterly unaffordable". The question is what we are setting about affording. The difference between the estimates from the Government, at roughly £6 billion, and the LSE group at £19 billion to £24 billion or £25 billion is the sort of difference that one must do better with, before one legislates, as I think the noble Lord would agree.

Lord Macdonald of Tradeston: Yes, I accept that. When I referred to unaffordabilty, I had in mind the noble Lord's statement about an order of magnitude of billions far beyond what is anticipated and what the Government have said so far. But I suggest that there are many other stages of financial analysis and timescales that would have to be gone through before coming anywhere near that total. I do not speak for the Government, but I try to recall from memory that in the other place the Government said that if some projections based on the LSE analysis were to be assumed, it would not happen at that cost. The Government said that the £300 per passport would not be a cost acceptable to them.
	There are great potential benefits here. Of necessity we must be tentative about what they might be, but, again, credit to the Government. Noble Lords will see that the Home Office has produced a benefits overview, which gives a range of benefits—although they may be speculative to an extent—of up to £1.1 billion per year. So, to conclude, I congratulate the Minister and the Home Office on the measures taken to monitor and control the cost of the programme.

The Earl of Onslow: All one is asking is, "How much?" We want Parliament to be told how much. There is nothing new in that, and it is nothing to do with the benefits. The issue is how much money Parliament will be asked to vote in taxes to pay for this scheme. That is all we want to know in debating this amendment.

Lord Macdonald of Tradeston: Surely, year by year that will be the business of the departments, of the Treasury and, ultimately, of Parliament. It seems quite wrong of noble Lords to say—over a period of 10 years, over hundreds of departments and agencies and over a multiplicity of possible uses—"Give us an exact figure". That is not sensible.

Lord Thomas of Gresford: Why is it not? We do not have to pay for this scheme at the moment. When we introduce this Bill, with the register and the identity cards, we shall have to pay for something that we do not have to pay for now. Has the noble Lord seen any figures that we have not?

Lord Macdonald of Tradeston: What I can say from some experience of businesses is that by the year you develop your ambitions according to the budget available. If you have a Chancellor, rather than a chief financial officer, he will soon put you in your place in saying what is affordable and what is not. You do not simply assume that everything desirable will have a ticket on it and that will be part of the ultimate cost. That is not the way in which the world works.

Lord Hylton: I invite the Minister to state what kind of costs are going to be recovered from the public—that is, from the passport holder or the future ID card holder. Will they only be Home Office costs, or will they be costs across the whole range of government? Will they be capital costs or annual recurrent costs? We need to know these things.

Lord Carter of Coles: The amendment proposed by the noble Baroness, Lady Noakes, has a keen attraction for those interested in accurate forecasting and accountability. After all, that is what we are talking about. The idea of identifying the costs incurred by the identity cards scheme from April 2004 and for 10 years going forward would be very useful if we could define the boundaries. What is proposed in the amendment is a great broadening of the boundaries, whereas what the Government are bringing forward in their costings is related to the activities of only one department. So to try to get costings across the whole of government is very ambitious and counter-productive.
	With regard to the importance of what we are engaged on, this country has a slow record of streamlining the information held by government about their citizens and getting it into more usable and useful forms. We are really not up to speed with the practices in our existing and emerging competitors, and that is something that we need to attend to. We have a very complex scheme of databases which are administered in different ways to meet different needs. We have, at the turn of the century, 80 million national insurance numbers, 60 million NHS numbers, 30 million taxpayer numbers, 30 million people on local authority databases, 45 million people on the electoral register, and so on. In contrast, the Nordic countries seem to have done things better; they have one number and one system that tracks people all the way through, and it is not surprising that they have some pretty low costs. That is something that we need to move towards; we are in the modern age. We cannot simply stand there and say, "Gosh, we do not know how this is all going to work". As the noble Lord, Lord Dholakia, said, people are finding the answers to those things, and we should be confident that we can find those answers technologically and managerially. The introduction of the Bill will provide things that have been discussed many times—the whole question of security protecting citizens, and so on. But we must not lose sight of the fact that the big win for us will ultimately be to make things more efficient.
	We have talked a lot about money. The scheme proposed by the Government has had its costs proposed by the Home Office. I should declare an interest as for a number of years I have been a director of the Home Office general board. I have not seen those costs, but they have been examined by KPMG and the Office of Government Commerce, as the noble Lord, Lord Macdonald, said. Steps have been put in place to prevent the sort of mistakes being made that were made before. We also have the steely oversight of the Treasury, which is not notorious—especially at this time—for flinging money around needlessly. In terms of holding the Government to account, we have a number of £584 million for what is going to happen within the Home Office.
	As for other government departments, I believe that we should leave that matter alone. In this amendment, we are being asked to approve something that broadens the boundaries, but a number of factors are involved. Huge technological change has taken place, and the costs of storage and processing are dropping very rapidly. We have been talking about looking forward 10 years, but if we look back 10 years we can see what has happened in terms of technology and the emergence of specific solutions—with eBay, easyJet and Tesco's home shopping, for example. Those are individual solutions for individual needs with a broad theme.
	The idea that we should produce some broad masterplan across government for using the identifier in all government departments seems rather statist, old-fashioned and totally impractical. We need to let each government department assess what it needs to do, come forward with a business case and be accountable for delivering it and getting the investment to do so, as well as getting the return on the investment and making it work. That is how we will get accountability. The accountability for the Home Office proposals has been made very clear by the Minister. We know that it is £584 million. We are all aware of the dangers of big IT; whether it is in the private or public sector, it is difficult—and I speak with some experience in that regard. You have to approach it like eating an elephant, in bite-sized pieces, taking one bit and eating it and then going on to the next. That is what we should do with this scheme.
	I am all for holding the Government accountable for the forecast, but they have made that forecast. I am sure that they will stand by it, and that is something that we shall all track. But to introduce this amendment would slow down the introduction of this very important legislation and the implementation of it. State security and civil liberties are important, but the amendment would hold us up in gaining the great benefits of the technological revolution that are to hand.

Baroness Scotland of Asthal: I shall adopt the modus operandi advocated by my noble friend Lord Barnett and say: I agree with my noble friends Lord Bhattacharyya, Lord Macdonald and Lord Carter of Coles. I prefer the arguments that they propose. I therefore disagree with the noble Lords, Lord Phillips and Lord Crickhowell, and the noble Baroness, Lady Noakes. That is how we would do it in judicial committee. I could then sit down. I thought that would get a great deal of approval from my noble friend Lord Barnett, which is of course my only aim in life.
	I was intrigued by the exposition of the noble Baroness, Lady Noakes, not least because of her professed scepticism about commercial confidentiality, bearing in mind the role she very recently held at KPMG. I am sure she is familiar with the thrust and the importance of those issues. I listened with some care to her acceptance, and I agree with her that her arguments were somewhat lopsided when it came to benefits. She concentrated on one issue. I understand entirely that she speaks for the Opposition on this, and one has to cast one's arguments as one can, but I respectfully say to her that such an imbalance means that we are left in a situation where issues expounded on behalf of the Government are the more sound.
	I want to explain why. In my letter I went through many of those issues, although not all noble Lords may have had the benefit of seeing that letter, so, for the purposes of this argument, I should just outline the main thrusts contained therein. For the record, I make the following clear: the current best estimate of the annual average running costs of issuing identity cards and passports to British citizens is £584 million per annum for the start of the identity card scheme. As I have said previously, on current plans, that is expected to be at the end of 2008, bearing in mind the comments of my noble friends Lord Carter and Lord Bhattacharyya about the developments that will come very rapidly during that period. This cost will absorb all the existing costs of issuing passports through the current United Kingdom passport service, together with the developments that will be needed over the next few years in order to introduce biometric passports.
	Around 70 per cent of the annual figure of £584 million we have estimated for the issue of biometric passports and identity cards would need to be spent in any event, if we were simply to move towards the issuing of biometric passports incorporating facial image and fingerprint biometrics. We would have to spend that money anyway.
	To give a sense of the costs of other existing government agencies, the estimate of the United Kingdom Passport Service's annual revenue and expenditure published in its corporate and business plans is £293 million in 2005–06 and £397 million in 2006–07. As a wider comparison, the total operating expenditure of the Driver and Vehicle Licence Agency for 2004–05 was £470 million. I quote these figures to reassure your Lordships that our published estimates are in the right order.
	Noble Lords ask how we can be certain that the estimates are produced on a sound basis. That is the thrust of the question that has been asked. As with any major government project, the identity cards programme is subject to regular review. That was made absolutely clear in the comments made by my noble friend Lord Macdonald, who has had intimate knowledge of how rigorous those processes are—and, indeed, how effective. The review teams have had full access to the business case for the identity cards programme. An independent assurance panel has been established to provide a further lane of oversight and offer additional assurance that the programme can deliver the effective implementation of the identity card scheme. We should also not forget the level of scrutiny that has been, and will continue to be, given to this project by our colleagues in HM Treasury, as the noble Lord, Lord Barnett, well remembers from his day.
	The estimates have to be approved by Parliament by being voted through the supply estimates process, either in the main or in supplementary estimates. It is worth reminding ourselves that this is a matter for the other place. It is the elected House that has the democratic responsibility for approving estimates of government expenditure. In order to provide even further reassurance, we commissioned the accountants KPMG to carry out an independent review of the cost methodology and cost assumptions in the outline business case. I will not repeat what my noble friend Lord Macdonald said, but the noble Baroness will remember well that KPMG is sound in terms of the advice it gives and rigorous in the approaches it takes. The report recognised the high quality that has already been alluded to, and the 15-page extract from the report has been published containing all KPMG's recommendations. As noble Lords know, this has been placed in the Library.
	Some have suggested we should be spending the money earmarked for identity cards on something else. That was the point made by the noble Lord, Lord Phillips of Sudbury: more on police, for instance, or on immigration officers. Again, there is an easy answer to that suggestion. We intend that most of the costs of issuing passports and identity cards should be recovered from the fees charged for passports and identity cards. If we were to stop the planned introduction of identity cards, there would be no fees, and so no spare pot of money to spend on another pet project; and I come back to the fact that we will have to spend £397 million anyway on these new passports.
	Several noble Lords asked why we are not able to provide more details on costings. The reason is simple: it is not because of a desire for unnecessary secrecy, but to protect the taxpayer and the public, who will benefit from the identity card scheme. The noble Lord, Lord Crickhowell, asked about the Supreme Court. The issues that arise from which building to buy for the Supreme Court are different from the issues we now have to deal with, for this reason: the provision of secure facilities and managed IT data centres is a highly competitive market. It is precisely for this reason that we would not want to let the market know how much we are prepared to pay for this service, because we have found in the past that people tend to pitch their bids at how much they think you are able to spend.
	Therefore, I am afraid it would be quite wrong of us to publish detailed costings now. If, for example, I were to say how much of the £584 million annual running costs is expected to be spent on running the national identity register, or the estimated cost of printing plastic ID cards, companies specialising in this sort of work would tailor their bids to the estimates we suggest, as I have just indicated. In plain terms, there would be no chance of finding a cheaper option as no one would dream of bidding lower than our forecast costs, even if that could be done.
	The same argument for commercial confidentiality applies to other estimates: for example, why we cannot publish in advance what we estimate the setup costs to be, or why it would not be appropriate to publish what other departments might expect to spend if they introduced identity card readers. We are working with key departments now to ensure that any amendment to their existing systems, or plans for new ones, is planned well in advance to ensure the benefits of the identity card scheme are realised.
	I should say to the noble Baroness, Lady Noakes, that the £584 million estimate of annual running costs includes the annual capital costs, in accordance with the Government's resource accounting procedures, and includes the depreciation of capital costs too. Neither costs of capital nor depreciation costs are themselves capital costs, but they are consequential to incurring capital costs. I am sure the noble Baroness is very familiar with that, although others may be less so.
	I have dealt with the budget approval process for the ID card scheme. Perhaps it is worth reminding noble Lords that my right honourable friend the Chief Secretary, who, many in the Chamber will recall, was formerly the Minister responsible for ID cards, keeps a close eye on these developments, and will continue to do so.
	The other issue that was raised was the lack of transparency on costs. We have published the operating cost estimate of £584 million. It was suggested we have not made clear, over a 10 to 15 year period of running the scheme, what the operating costs will be. But we say that is a clear indication of the scale of the costs. We think that we have struck the right balance between indicating the scale of the total cost, including what the costs will be to the individual—we have made that clear, to answer the point made by the noble Lord, Lord Hylton, in relation to the ID card itself being estimated to cost £30—and the need to secure value in a highly competitive market.
	A number of noble Lords, not least the noble Lord, Lord Phillips, asked about the difference between the LSE's consultation and ours. With the greatest respect to the LSE consultation, we say that it contains flaws in relation to the way in which the figures were put together. One understands the basis upon which that has been done but the LSE consultation exercise papers did not anywhere state the suppliers it had consulted, but it stated that commercial confidentiality was not necessary. Interestingly, I note that the expert panel of suppliers did not endorse the final LSE findings. Indeed, the high level of participation by suppliers within the Intellect market sounding process, which is designed to protect the confidentiality of both parties in the procurement process, seems to indicate an acknowledgment by suppliers of the need for confidentiality in the process. As many Members of the Committee will know, Intellect is a trade association of IT and communications technology which runs market sounding seminars connected with the ID card scheme.
	We have received a recent letter in relation to the LSE's findings from Professor Angell of the LSE, which replies to another letter. That will be published. I hope the Committee will appreciate that there are a number of reasons why we disagree with those findings and prefer our own.

Lord Phillips of Sudbury: I thank the noble Baroness for giving way. What is the quantum of disagreement? We have figures of £6 billion, £19 billion, £24 billion and £25 billion. Is the difference £1 billion or £15 billion? The figures are so huge and the LSE is such a renowned institution that most of us are left completely perplexed by this.

Baroness Scotland of Asthal: We say that our figures are sound. They are sound because they are based on actual costs. We have predicated them on the costs that we have now. We know how much it costs us to run the Passport Agency. We know the costs of the system that we intend to establish. Given the bracket of the £397 million—being how much we currently spend—we have extrapolated how much it would cost to add the extra 30 per cent. As I have said quite clearly, 70 per cent of this money is going to have to be spent already. I am happy to put in the Library a detailed exposition of the difference between our costings and the others. I referred to the letter written by Professor Angell of the LSE. We have now replied. There seems to be a basic error. We were surprised to discover, for example, that in the body of the report undertaken by the LSE there was no reference to one of the major reports on biometrics and the way in which that was dealt with in the United States. It is unusual for such a gap not to have been addressed. That is surprising, but the correspondence may elucidate some of the differences between us.

Lord Phillips of Sudbury: I am again grateful to the noble Baroness for giving way. I think that the report was published in May 2004. The LSE group was aware of it and considers that it is not germane to this matter. I think that I am representing the group correctly. It is certainly not something it has overlooked.

Baroness Scotland of Asthal: One of the curious things is that the LSE report did not provide any background information on how the figures were calculated. Indeed, the LSE has acknowledged that some of them were wrong and that some of the assumptions were guesses. That is surprising given that it is a major study. Professor Angell indicated that the matter was taken into account. I, of course, accept that in its entirety. However, the fact that it was taken into account was not reflected in the report, which is unusual and surprising. Those issues remain.
	How will other government departments react? The costs will be incurred only to generate a net benefit to a particular department, for example, increased efficiency, better customer service or reduced fraud. It would not be right to regard these future costs as part of the planned cost of issuing identity cards, any more than the cost of providing passport readers at ports should be seen as part of the cost of issuing passports. Decisions on the passport readers are a matter for the Immigration Service, looking at its own business case justification for spending the money set against the benefits that speedier passage of passengers would achieve. Exactly the same cost-benefit judgment will need to be made in relation to ID card readers.
	The legislation before us today is enabling legislation to allow a system of identity cards to be introduced. The Bill will not be the final word and the Government will need to be reassured at every stage that the scheme has sound financial viability. Of course, expenditure on the ID card programme is subject to the normal audit procedures of departmental expenditure exercised through the National Audit Office. I entirely accept that we should be discussing costs as part of the process of passing the Bill. However, we must also recognise that, constitutionally, estimates to be agreed by Parliament for the development and running of the ID card scheme remains a matter for the elected House and not your Lordships' House. We feel that the figures we have to date are sound and have been interrogated with propriety. As my noble friend indicated, the Government are sure that we will implement this measure only if we are confident that these figures are going to be within the realms of what is reasonable. We believe that they are.

Baroness Noakes: I thank all Members of the Committee who have taken part in this interesting debate which has helped to illuminate some of the areas of difference to which we will want to return on Report. The noble Baroness said that the costs of £584 million—which we have to accept as an odd average—will be 70 per cent of the total costs. So we have to take entirely on trust that everything that would not be required for the passport is going to amount to the 30 per cent addition; that is, the whole of the cost of running the register, the whole of the interconnection to other departments and, indeed, other organisations, and the way in which it will be used. We find that quite difficult. The figures that the noble Baroness gave did not help me to understand that these figures were of the right order of magnitude. However, in the amendment I was not trying to answer that question; I was saying that insufficient information had been made available to Parliament to allow Parliament to do that. I fully accept that it is for the other place to have control over supply, but I do not believe that it is wrong for your Lordships' House to have a proper interest in the costs involved in implementing such major legislation—especially legislation such as this which will have a major impact on people's lives via their pockets, given the charging provisions in Clause 37.
	Two reports have been referred to: the London School of Economics report and the KPMG report. The London School of Economics report comes out with figures that are very much higher than the Government's. I agree with the noble Lord, Lord Phillips, that that issue needs bottoming-out. I do not believe that we have yet achieved that. I am almost embarrassed to talk about the KPMG report. When I used to ply my trade as a jobbing accountant one did reports from time to time, and one was asked from time to time to publish the kind that can be put in the public arena. That raises hugely difficult issues because reports are generally meant to be read as a whole. I am used to looking for the code of what is not in there. Paragraphs 2.2 and 2.3—which cover the scope, the exclusions and the assumptions—tell one quite a lot about what the KPMG report does not tell you about costs. We have to bear that in mind.
	We are not going to agree on whether this House should be allowed to see not only Home Office costs but costs arising across Whitehall. We cannot see an artificial distinction so that the Government, having divided up into departments, can then say, "We will only talk about departments". The noble Baroness said that it did not even include the Immigration Service's total costs. That seems to me a very partial view on life. I said at the outset that this was a probing amendment to explore the issue of costs in more depth than has been done to date in Committee. For my purpose it has been most useful, and I look forward to returning to this issue on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.
	Clause 37 [Fees in respect of functions carried out under Act]:
	[Amendments Nos. 260 and 261 not moved.]
	[Amendment No. 262 had been withdrawn from the Marshalled List.]
	[Amendments Nos. 263 to 268 not moved.]
	Clause 37 agreed to.
	Clause 38 agreed to.
	Clause 39 [Verifying information provided with passport applications etc.]:
	[Amendments Nos. 268A and 268B not moved.]
	[Amendment No. 269 had been withdrawn from the Marshalled List.]
	Clause 39 agreed to.
	Clauses 40 to 42 agreed to.
	Clause 43 [General interpretation]:
	[Amendment No. 270 not moved.]
	[Amendments Nos. 271 to 275 had been withdrawn from the Marshalled List.]
	Clause 43 agreed to.
	Clause 44 agreed to.
	Clause 45 [Short title, repeals, commencement, transitory provision and extent]:
	[Amendments Nos. 276 and 277 not moved.]
	[Amendments Nos. 278 and 279 had been withdrawn from the Marshalled List.]
	Clause 45 agreed to.
	Schedule 2 agreed to.
	Title agreed to.

Baroness Scotland of Asthal: Before the House resumes, I invite noble Lords to make a note in their diaries. We complete the Committee stage of this Bill. Noble Lords will remember that we had an initial demonstration of biometrics in this House on 14 November, which I attended. A further demonstration will be held in Committee Room 3 on the Committee Corridor starting at 10 am on Thursday, 12 January 2006. I hope that noble Lords will take advantage of that opportunity if they wish to see how the biometric information is undertaken.

House resumed: Bill reported with amendments.

Consolidated Fund Bill

Lord McKenzie of Luton: My Lords, I beg to move that this Bill be now read a second time.
	Moved, That the Bill be now read a second time.—(Lord McKenzie of Luton.)
	On Question, Bill read a second time; Committee negatived.
	Then, Standing Order 47 having been dispensed with (pursuant to Resolution of 15 December), Bill read a third time, and passed.

European Council: 15–16 December 2005

Baroness Amos: My Lords, I would like to repeat a Statement made in another place by my right honourable friend the Prime Minister.
	"With permission, Mr Speaker, I should like to make a Statement about the European Council in Brussels on 15–16 December.
	"The main issue at this European Council was the EU budget for 2007–13, the first budget ever for the enlarged Europe of 25 member states, soon to become 27 with the accession of Bulgaria and Romania.
	"This country can be proud of the part we played in the enlargement of the EU. The countries of central and eastern Europe that for so long suffered under communist dictatorship are now free democracies and vibrant new members of the European Union. I say that to have championed the cause of these new states, to have welcomed them into NATO and Europe and then to have refused to agree a budget that protects their future economic development, would have been a betrayal of everything Britain has rightly stood for in the past 15 years or more since the fall of the Berlin Wall. They are our allies. It is our duty to stand by them, but it is also massively in our national interest.
	"These new member states have fast-growing, open economies; new ideas; human capital; and a political vision of Europe that is close to ours. However, though they are catching up economically they are still much poorer than most of the original EU 15; their people are half as wealthy as in the rest of Europe. The purpose of the budget is rightly to transfer resources from the wealthier west of Europe to the poorer east of Europe. Over the coming years, within a broadly stable budget, funds for the new member states will increase from €24 billion to €174 billion, a seven-fold increase.
	"In time, of course, this makes them prosperous, and us too. Look at the example of Ireland and Spain. Bilateral trade with these countries, in goods alone, is now more than €60 billion a year. Investment in the future prosperity and stability of eastern Europe brings big and lasting benefits to this country.
	"The reason it was so important to reach agreement at this European Council is as follows: as all central and eastern European leaders made clear to me, it was essential to have a December deal to allow these countries to plan and prepare for using the EU funds when those funds start in 12 months' time. It was clear that the prospects for a deal next year were negligible, and if there were to be no deal in 2007 the European Parliament would take over the budget process. This would mean the Parliament setting annual budgets on the existing financial arrangements, which would have meant that countries such as Poland would have lost around two thirds of their EU funds.
	"That is why they wanted a deal now. Of course, there is also a need for fundamental reform of the EU budget. As I said in June, what we need is to settle the budget on the basis of everyone paying their fair share of the costs of enlargement now; and then to open up the prospect of a radically reformed budget midway through the next budget period.
	"The agreement reached on Saturday morning differed from that of the Luxembourg proposal in four key respects. The overall budget is smaller. The proposal in June was that the UK rebate should be reduced in commitment terms by around €22.5 billion; under this deal the maximum we shall pay is €10.5 billion. In the review clause in June, the CAP agreement of 2002 was specifically endorsed. Now it is clear that all aspects of the budget can be examined in 2008–09.
	"However, crucially for Britain this agreement states expressly, unlike that of June, that the British rebate remains in full on all expenditure in the existing 15 member states. It remains in full on all CAP market expenditure everywhere in the Union, including in the new member states. We have, however, agreed to disapply a proportion of the rebate on structural and cohesion spending in the new member states, in effect on spending directly designed for economic development. As I have said, the cost of this is up to a maximum of €10.5 billion, or about £7 billion over the seven years of the financing period. Moreover, because the rebate stays on all CAP and all spending in the EU 15, the rebate will rise not fall, to an average of €5.8 billion in payments terms annually from 2007. Overall, the rebate will get us around €41 billion back in the next budget period, substantially more than in this period. That is then the crucial leverage for future reform.
	"As the strongest supporter of enlargement, among all member states, I strongly believe that it was right, indeed essential, that the UK should contribute properly to enlargement. The fact is that that if we support and indeed drive through a policy of ending the post-war division of Europe, we have to be ready to accept our fair share of the costs of that policy. Enlargement was never and could never be a cost free policy—and this Government are prepared to shoulder their responsibilities in this area, because it is the right thing to do.
	"In this context I want to dispel one misunderstanding that has arisen: namely, the impression that only the UK is contributing to the costs of enlargement. All wealthier countries are contributing. In terms of net contributions, our contribution will increase by 63 per cent over the next financing period in comparison with 2000–06. France's contribution will increase by 124 per cent. Italy's contribution will increase by 126 per cent. Spain will lose in the region of €40 billion. Moreover, after some 20 years of paying, under the original rebate, twice as much as France, UK and French contributions will from 2007, for the first time, be in rough parity; and because the UK economy is now bigger than the French economy, we will in fact, on the Commission's figures, be contributing a smaller share of our national wealth.
	"Alongside this agreement on support for the modernisation of eastern Europe, we also agreed on a fundamental review of all aspects of the EU budget, including the CAP, to be led by President Barroso, with the recommendations in 2008. As the language in the European Council conclusions makes absolutely clear, it is then possible for changes to be made to this budget structure in the course of this financing period. This will also allow us to take account of any changes agreed in the WTO round, including the decision to phase out all export subsidies for agriculture by 2013. In addition, it was agreed that any CAP spending for Romania and Bulgaria, about €8 billion, should be fitted within existing CAP ceilings, a significant budgetary discipline.
	"So to summarise—when people ask what did we get for agreeing to pay our fair share of enlargement, the answer is: an agreement that sees us for the first time since we joined the EU paying no more than similar countries such as France and Italy; the rebate staying put on all CAP spending and rising not falling in value; and a process that can in the years to come lead to the necessary fundamental reform of both rebate and CAP that we would all want to see.
	"I should report briefly that the Council also agreed on a strategic partnership between the EU and Africa, on a new and strengthened policy on illegal migration, and on a counter-terrorism plan. We also agreed that Macedonia should be granted candidate status, the next step in its path towards membership of the European Union. As a strong supporter of Macedonia's ambitions, I want to congratulate the Macedonian Government on the progress that they have made towards this goal. The European Council also unreservedly condemned the President of Iran's recent remarks about Israel and warmly welcomed the 15 December elections in Iraq as a further step towards democracy and stability in that country.
	"Over the past six months, the UK presidency has delivered the historic launch of accession negotiations with Turkey and Croatia, a long-standing British objective. We have delivered a number of important pieces of legislation, including the REACH regulation on chemicals and the data retention directive, an important measure against terrorism. We have delivered reform of the EU sugar regime and a strengthening of the EU position on climate change. And we delivered an EU budget deal which is €160 billion cheaper than the original Commission proposals, provides for a huge transfer of spending from the original 15 to the new member states of eastern Europe, and which preserves the British rebate in full on the CAP and all spending in the EU 15. I commend all of this to the House".
	My Lords, that concludes the Statement.

Lord Strathclyde: My Lords, I thank the Leader of the House for repeating this important Statement. I regret that we did not have such a Statement after the Hampton Court summit, convened by the UK presidency, and I hope that both Houses of Parliament will in future be able to comment on interim heads of government summits before final decisions such as these are made.
	Christmas approaches. I understand that the Prime Minister regards his weekend's work as a triumph and it would be unseasonable to upset him. But will the noble Baroness, when she sees him next, very delicately and sensitively tell him that very few pubs will be staying open late to toast this so-called success? Some 200 years after Trafalgar we have Brussels—a day when champagne flowed in Paris on the saving of the CAP and a German paper jeered that the "tiger" of Europe had turned into a "doormat".
	The Prime Minister says that the UK rebate will rise in years ahead. Well, yes, strictly speaking that is true, but the problem is that without his intervention it would have risen far more. Can the noble Baroness confirm that had the Prime Minister never gone to Brussels, the UK rebate would have risen by £7 billion more than it now will and that this is a massive new burden on British taxpayers to pay French farmers? Why, if this £7 billion hit on our national budget was planned, did it not feature in the Chancellor's Pre-Budget Statement?
	What did the Prime Minister mean in another place when he said that the rebate would not be negotiated away, "period"? Was he telling Parliament one thing, when he planned to do another, or had he forgotten to add that by "period", he meant a period of just six months? The only defensible circumstances in which the United Kingdom could waive its veto on the rebate were ones in which the French Government waived their veto on reform of the CAP. The Prime Minister told that to the CBI less than a month ago. So why, when the Prime Minister waived, did President Chirac sit on his hands?
	Will the noble Baroness confirm that CAP spending will be higher next year and in every year up to 2013? Will she confirm that France's foreign Minister has said, "Jacques Chirac has secured there won't be reform to the CAP before 2014"? Will she confirm that France has now briefed that it will veto any change to the CAP in 2008–09 and confirm that Prime Minister Ahern has said Ireland will tolerate no change in farm spending for the coming decade? I think that the noble Baroness will be able to confirm those statements.
	What kind of victory is this? The UK gives up a fifth of its rebate and, despite what the Statement says, will remain a bigger net contributor than France, while France blocks any CAP change. In Brussels, the Prime Minister argues in vain for CAP reform, while in Hong Kong his Cabinet colleague resists CAP reform at the WTO. To be on the different side in two arguments over world-wide free trade and EU protectionism, and to lose where it matters most, is a humiliating weekend for Britain.
	We want to see Europe succeed, but it cannot succeed—

Noble Lords: Oh!

Lord Strathclyde: Noble Lords should be patient; they will enjoy this.
	We want to see Europe succeed, but it cannot do so unless we dismantle protectionist barriers against poor countries and make the excesses of the CAP history. I just said that, but the Chancellor of the Exchequer said it first and I agree with him. How bitter he must be that the CAP is secure until 2013 while a £7.2 billion black hole has been blasted in his Budget plans. This was the British people's money. Now it is to be given away. Perhaps the noble Baroness can say how it will be paid for—by increasing tax, cuts in public spending, borrowing, or what?
	The Statement said that Spain will pay more, but can the noble Baroness confirm that under this deal Spain will remain a net beneficiary from the EU until at least 2013? And why did the UK propose extra funding for the Spanish enclaves of Ceuta and Melilla when Spain continues to harass Gibraltar?
	The Prime Minister made much of enlargement, and he is right to do so. We on this side have always been a passionate supporter of EU enlargement. We want to see Turkey in. We welcome the decision to open discussions with Macedonia, and we accept some extra resource for enlargement. But that has to be done fairly—not just by surrendering a fifth of our rebate at a cost to UK taxpayers but also by reducing the bloated and unjustifiable farm subsidies that will remain.
	The countries of Eastern Europe are our natural allies if ever real EU reform is to come. Not so long ago, President Chirac was lecturing them to keep silent and to do what France and Germany told them. What a dismal day, then, for UK diplomacy to negotiate in such a ham-fisted way that the Foreign Minister of Poland was driven to sign with France in the Financial Times a joint denunciation of Britain's attitude to Eastern Europe.
	I have to ask the noble Baroness yet again why in this summit under the UK presidency no action was agreed against the Government of Robert Mugabe. Was there any censure of his recent visit to Rome or of the violence and sham of Zimbabwe's rigged elections? I support the forthright condemnation of the deplorable comments by the President of Iran calling for the eradication of Israel. But have not EU leaders been too complacent for far too long about Iran and its nuclear ambitions? The summit condemned use of the death penalty in Iraq. Can the noble Baroness say whether the Prime Minister will intervene to prevent the execution of Saddam Hussein if he is convicted of genocide?
	Taken all in all, the UK presidency has been a bitter delusion. This dismal summit showed yet again the disjunction between the Prime Minister's bold words and feeble achievements: the desperate need for urgent CAP reform remains unmet; the cry of the third world for the opening of EU markets unheard; the call from Europe's unemployed and struggling businesses for a bonfire of regulations and directives unheeded; the crisis of fraud in the EU budget untackled; and the confident claims of moving Europe in a new direction has proved to be so much empty spin. The UK presidency has come and gone—leaving nothing behind.

Lord Maclennan of Rogart: My Lords, I join in thanking the Minister for repeating the Prime Minister's Statement here. I ask her to agree that while the new budgetary framework will not help to reform the direction of EU expenditure, as the Prime Minister declared he wanted, on the promotion of growth through expenditure on research and development, education and innovation, the final agreement has averted a crisis over the budget which would have damaged particularly the new member countries of the European Union. Although it has to be said that the Official Opposition have not shown willing to support us in this, we attached high importance to those countries being full members of the Union with the consequential underpinning of democracy, the increase of their prosperity and the preservation of peace across the whole continent of Europe. Is it not clear that if, as the Conservative Opposition implied we should have done, we had walked away from the deal, which it was always clear the French would be in a position to obstruct, we would simply have accentuated the difficulties not just for the new countries but for the whole European Union?
	Is it not clear—perhaps the noble Baroness will repeat this; I think she stated it—that the agreed framework budget will result in the net contributions of France, Italy and this country being broadly equivalent from 2007? Is that redistribution not entirely welcome? Is it not also the case that, as a result of this budget, the richer countries will redistribute wealth from 2007 to the countries in need? The position of this country today is very different from what it was in 1984, when the budget rebate was first agreed and we were one of the poorer European countries. Today we are one of the richer countries.
	Has the Minister given any consideration to the impact on the further discussions about the restructuring of the budget in the European Parliament when Conservative Members accept the lead and suggestion of their new leader in another place that they should withdraw from membership of the European People's Party and join the fringe elements of that Parliament? Do the Government think that Britain's interests will be helped by the marginalisation of the Conservative Party in the European Parliament?

Baroness Amos: My Lords, I begin by thanking both noble Lords. I say to the noble Lord, Lord Strathclyde—I always enjoy listening to him—that I find it extraordinary for him to try to lecture me or this Government on the success of our presidency and on the success of the summit and, at the same time, to say that he wants to see Europe succeed when, as the noble Lord, Lord Maclennan, stated, the first action of his leader was to withdraw the Conservative Party from the EPP. I find it extraordinary to think about how the noble Lord and his party might wish to exercise influence within Europe, given that they would have to sit with the group of independent MEPs. I quote a Conservative MEP:
	"These are the MEPs whom no other group will tolerate, and include people like Jean-Marie Le Pen, Alessandra Mussolini and Robert Kilroy-Silk".
	I have some difficulty in understanding how the noble Lord would expect his party to serve Britain's interests in Europe through that mechanism. On that point, I entirely agree with the noble Lord, Lord Maclennan.
	The noble Lord, Lord Strathclyde, asked me a number of other questions about the nature of the rebate. Perhaps I can help the noble Lord by reminding him that the rebate was designed to correct an unfairness in 1984. He may recall that the noble and learned Lord, Lord Howe, and the noble Lord, Lord Lawson, have both described the rebate as an anomaly on an anomaly. It was not intended to create a new unfairness in 2005. That is precisely why we were prepared to pay our share of enlargement. We championed enlargement. Indeed, as the noble Lord may recall, successive Conservative governments also championed enlargement. But we have to pay for it. We recognise our responsibilities and that is why we think that this is a good deal. It moves resources from the richer countries to the poorer countries in the European Union. However, if the noble Lord looks at his figures, he might see that, taking the European Union average GDP as 100, the UK is above it at something like 120. A country such as Latvia is below that average, at 40. That unfairness needs to be addressed, and that is why we had a very clear objective in the negotiations to move resources from the richer to the poorer countries.
	It must be remembered that we also won an agreement for a wide-ranging review of the EU budget, with the possibility of changes being implemented within the current financial perspective. That is entirely consistent with what my right honourable friend the Prime Minister said when reporting in another place on discussions at the European Union Council in June. He said:
	"I proposed that we have a fundamental review of the EU budget, reporting in time for us to be able—midway through the next financial period—to alter fundamentally the structure of the budget, dealing both with the rebate and the CAP".—[Official Report, Commons, 20/6/05; col. 524.]
	As for the size of the rebate, in the period 2000 to 2006 it was €5.3 billion. In the period 2007 to 2013, it will be €5.8 billion, even with the money that we are giving to support the enlargement process.
	I say to the noble Lord, Lord Strathclyde, that Britain did not support the common agricultural policy at the World Trade Organisation talks. We have argued time and again for the importance of reform of the CAP in the context of WTO discussions. I also remind the noble Lord that there was agreement at the summit on a wide range of issues including conflict resolution with respect to the relationships between the European Union and Africa.
	I endorse the point made by the noble Lord, Lord Maclennan. The redistribution is welcome. Countries in need will see their budgets go up from €24 billion to €174 billion, a sevenfold increase. Of course we all hope that the discussions in the European Parliament on these issues will be constructive.

Lord Williamson of Horton: My Lords, the results of EU negotiations, as they cross the Channel, usually arrive in a light mist—or, in the case of the Official Opposition, a red mist. I would like the Leader of the House to clarify three points which I think are important for the public, although they may be self-evident to experts.
	First, the issue here has been the financial perspectives which form the budget framework for 2007 to 2013. I want to confirm that the whole system of capping and overall control of the budget will remain fully in effect right through this period. That is a very important point for the public, whatever changes we have made this time.
	Secondly, will the rebate—which as the noble Baroness said is an "anomaly on an anomaly", but one which I love very dearly myself—remain an integral part of the system and continue to apply unchanged to our net payments with the sole exception of the structural and cohesion expenditure in favour of the new member states? If the answer to those two questions is "Yes", then the budget expenditure remains capped and the UK's rebate can continue to rise as needed. Those are important points for the public.
	Finally, will the noble Baroness confirm that it is reasonable to foresee that, after the application of the rebate even as amended, the UK is likely to remain in the middle group of net contributors per head? For example, in 2004, the Netherlands, Sweden and Germany were ahead of us, and another four countries were very close to us. In the new system, we should be in a fairly tight bunch of net contributors. We cannot forecast exactly, but is that a reasonable forecast?

Baroness Amos: My Lords, the noble Lord, who has much greater experience in these matters than I have, is absolutely right. The answer is "Yes" with regard to the budgets remaining capped, and "Yes" to the rebate remaining an integral part of the system. It is also right that Britain will remain in the middle group of net contributors. The Netherlands, Germany and others are ahead of us.

Lord Radice: My Lords, to those who argue that we have given up our rebate without getting anything in return—and we have heard quite a lot of that over the past few days—is not the answer that it is only right that the United Kingdom should pay its fair share of enlargement, a goal supported by all parties in Parliament? Is it not the case that we will retain the UK rebate, as my noble friend said, and do so in relation to the CAP and the expenditure of the existing 15 countries, and that it will continue to rise throughout the period? Is it also not right that, for the first time, France and the UK will be broadly making the same net contribution to the budget? Finally, let us not forget that, in contrast to the Luxembourg package, we shall be able to raise the issue and argue the case for reform of the CAP and for a modern budget system in 2008, rather than in 2013–14?

Baroness Amos: My Lords, my noble friend is quite right. The British rebate remains in full on all expenditure in the existing 15 member states. It remains in full on all CAP market expenditure everywhere in the Union, including in the new member states. Of course, the rebate will continue to rise as our contributions rise, because the rebate is linked to our contributions. Perhaps I may also tell my noble friend that the Commission president, President Barroso, said:
	"I welcome this agreement on the comprehensive review clause and the mandate given to the Commission to prepare this revision of the budget. The Commission will look at all aspects of the budget from 2008 onwards, without taboos".

Lord Marlesford: My Lords, in the Pre-Budget Report published on 5 December, the Chancellor put the net contribution to the EU budget for 2006–07 at £3.4 billion, and for 2007–08 at £5.2 billion. What will those figures become as a result of the settlement?

Baroness Amos: My Lords, I hope the noble Lord will allow me to write to him on that.

Lord Hannay of Chiswick: My Lords, could the Leader of the House confirm that the European Union contributed £5.4 billion to the new member states between 1990 and 1999; €21 billion to them in the current 1999 to 2006 financial perspective; and that the UK contributed its full financial share to all of that money paid before 1 May 2004 and received no rebate on it? Would she not agree, therefore, that it is perfectly reasonable to treat that spending now as outside the rebate system, and that it was so accepted by the Opposition when they were in office?
	Does the Minister also agree that, with the benefit of hindsight, it was a mistake for the British EU presidency to cut so much from the allocations of the new member states in its first compromise proposal only to have to reinstate almost all of it in the last one? What was gained by that mistaken manoeuvre?

Baroness Amos: My Lords, the noble Lord, Lord Hannay, is entirely fair in his questions. With respect to the contributions to the accession countries between 1990 and now, the noble Lord is right that they have been honoured by successive governments and they have been outside the rebate system.
	As regards the noble Lord's second question on the process of negotiation, he knows as well as I do that in negotiating a deal between 25 member states, with Britain holding not only the rebate but also the presidency, the negotiating process had to be handled extremely sensitively. We put proposals on the table, there was then a series of lengthy discussions with our colleagues and we reached a compromise. That is what negotiations are about.

Lord Tomlinson: My Lords, does my noble friend not agree that in order to get the rebate—in order to buy the rebate—the noble Baroness, Lady Thatcher, agreed to an increase in own resources? At Fontainebleau, she agreed to finance the increase in the common agricultural policy in order to get a rebate.
	Turning to the Statement, does my noble friend also agree that there is a slight ambiguity in the final sentence of the first paragraph on page 4? It states:
	"It is then the crucial leverage for future reform".
	Does my noble friend agree that the Prime Minister has already applied the crucial leverage for reform by the deal that he has struck in Brussels and that in 2008 the ball will be clearly in the court of those who are the defenders of the CAP, from which there should be no withdrawal?

Baroness Amos: My Lords, my noble friend is right that there is an ongoing reform process. However, in the Statement we were trying to make clear that when the reform proposals are made by the Commission some countries will be arguing against them. My noble friend is right that the ball is now in the court of the defenders of that policy.
	On my noble friend's first point about the agreement made by the noble Baroness, Lady Thatcher, in increasing our own resources to buy the rebate, there is a great deal we can do with hindsight. The noble Lord, Lord Hannay, tried to press me on this as regards our negotiating position. With hindsight, when the rebate was negotiated, we should have said something about the long-term reform of the CAP. We did not. We have managed to do that through this process.

Baroness Shephard of Northwold: My Lords, the Minister described the rebate as an anomaly. If that is the Government's view, why in the summer did the Prime Minister defend it and say that it was not for negotiation, period?

Baroness Amos: My Lords, the noble Baroness may recall that I was quoting the noble and learned Lord, Lord Howe and the noble Lord, Lord Lawson.

Lord Clinton-Davis: My Lords, does my noble friend agree that this House has rarely heard a more ill-informed attack on a European summit than has occurred today? While the common agricultural policy must be reformed, which is highly desirable, does she also agree that it was not possible to reform it at this meeting? Does she further agree that the Opposition have totally ignored the plight of the countries of eastern Europe which are new to the EU? They had to be given some hope of contributing resolutely to the success of the EU and that without that it would not be possible to agree. Does she not agree that the Prime Minister has given them some hope?

Baroness Amos: My Lords, I agree with my noble friend that we were not going to get reform of the CAP at this meeting. We never expected to. We have a process. Noble Lords may recall that in 2002 we obtained a deal which paved the way for enlargement. In 2003, a deal delinked subsidies from production. In 2004, we extended the scope of that deal to cotton and tobacco. This year, we have sugar reform. There will be reform of other sectoral regimes in the years to come. The Prime Minister, in his statement, made it absolutely clear that we wanted a fundamental review of the CAP and that in that respect we would look at our rebate. We did not expect to come out of this meeting having delivered that fundamental reform.

Lord MacGregor of Pulham Market: My Lords, have any allowances been made in the Pre-Budget Report for the reductions agreed at the summit, or are they additional to the figures in that report? Do they amount to about £1 billion a year?

Baroness Amos: My Lords, the figures amount to about £1 billion a year. However, I would be an extremely brave woman to try to tease out how they link into the figures in the Pre-Budget Report. I know that my right honourable friend the Chancellor of the Exchequer will be looking at the implications of this. We across government have been thinking and talking about the issue, given that we knew we wanted some kind of deal at this summit. I am sure that at the appropriate time, Parliament will be informed of the implications.

Lord Lea of Crondall: My Lords, does my noble friend agree that without an agreed budget, which apparently is now the preference of the Opposition, it would have been difficult to implement a number of essential EU policies, not least the historic overall strategy for Africa, referred to in the Statement, the implementation of which, in co-operation with the member states of the African Union, is now the subject of an inquiry by the EU Select Committee?

Baroness Amos: My Lords, my noble friend is right that there is no basis on which it is possible to have a discussion with members of the party opposite on the implications of the budget for Europe and Britain overall. Perhaps it would be helpful if members of the party opposite went back and looked at the figures on this because the questions they have posed to me appear not to have been based on facts.
	Furthermore, my noble friend is right that it will enhance EU support to Africa in achieving the millennium development goals. Noble Lords may recall that one of the things we succeeded in doing under our presidency was to get a commitment from a number of our EU colleagues to set a target for reaching 0.7 per cent of GNI on development.

Earl Ferrers: My Lords, will the noble Baroness be kind enough to answer a simple, non-technical question which I have always found difficult to resolve? Everyone says that the CAP should be reformed because it is too expensive and there are excesses and at the same time, the Government are encouraging the enlargement of the EU to include a whole lot of countries from eastern Europe whose agricultures are poor. Will those countries not take advantage of the CAP and their membership of an enlarged Europe to make better their agricultures, and thereby contribute to the very problems and excesses of the CAP? And where will be then, because there will be no resolution of the problem?

Baroness Amos: My Lords, the simple answer is that it depends. For example, in our discussions in Poland with the Government and others, it appears that Polish farmers are not at all sure that they want retention of the CAP.
	They feel that they can be successful without it and that the common agricultural policy is beginning to distort the Polish economy. Of course, there is the potential for a longer-term problem, given that, at present, 35 per cent of the European Union budget goes on the common agricultural policy and a further 35 per cent goes on the structural and cohesion funds. The reason that it is so important that we reform the CAP is not only because of its distorting effect on European Union economies but also because, in the longer term, it may well prevent those countries in eastern Europe that have a vision of the European Union that is very close to ours achieving the fundamental reforms that they would like to see if their agricultural sectors and their farmers become too dependent on the CAP.

Lord Grenfell: My Lords, the noble Lord, Lord MacGregor, and other noble Lords raised the question of the provision that has been made for the costs of the reduction in the rebate of £7 billion over a seven-year period. That averages out at £1 billion per year. Am I wrong in understanding that in the first two years of those seven years there will be no cost and the cost will come in years three, four, five, six and seven?

Baroness Amos: My Lords, my understanding is that the public finance forecast will be updated as a result of the budget. I have not been advised whether these costs only kick in in year three. I am happy to write to the noble Lord to confirm whether that is the case.

Lord Hamilton of Epsom: My Lords, the Minister told the House that enlargement could never be a cost-free option. The Prime Minister must have known that six months ago, so why did he say that the rebate would not be negotiated away, "period"?

Baroness Amos: My Lords, he said that because we have not negotiated the rebate away.

Lord Stoddart of Swindon: My Lords, does the Minister agree with the figures in the Times this morning? They are that, at present, we pay £25 billion net to the European Union over a seven-year period but, under this agreement, we will pay £42 billion in the seven-year period. That is £6 billion a year, and a net increase of £2.5 billion every year for the next seven years. Does she also agree that the British people, who are very generous, look askance at paying this extra money when their infrastructure is going into a state of decrepitude and our workers are being asked to work until they are 67?

Baroness Amos: My Lords, I cannot agree with the noble Lord. The British people well understand that in the past 10 years our trade with eastern European countries has gone up by 300 per cent. That makes an incredible difference to investment in this country and to our economy. I hesitate to agree with figures in the Times. I prefer to use the figures that I have quoted to the House.

Business

Lord Grocott: My Lords, I hope it will be helpful to the House if, with permission, I make a brief business statement. Business earlier today took longer than we anticipated, which is no one's fault, and the last business today is an important Second Reading. The usual channels, with their usual alacrity, have moved to deal with this problem and I announce to the House that we shall have to find another time as early as possible in the new year to do the Second Reading of the London Olympic Games and Paralympic Games Bill. I know that this will be inconvenient to some noble Lords and convenient to others, but that is the nature of the job. I hope that the House will accept that it is a sensible decision not to begin that business very late, which would otherwise have happened.
	Should Back-Bench speakers in the economic debate speak for around 10 minutes each—my maths is not good enough to recalculate following the dropping of the other legislation, so that is an intelligent guess—then we will finish by our target rising time of 10 o'clock.

Pre-Budget Report 2005

Lord McKenzie of Luton: rose to move, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2005 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.

Lord McKenzie of Luton: My Lords, allow me to welcome today's opportunity for a debate on the information that we provide to the European Commission. This falls to the Government as part of our duties under Section 5 of the European Communities (Amendment) Act. As noble Lords know, we report key information on our main economic policy measures to the Commission on an annual basis. Naturally, that includes pertinent data on non-inflationary economic growth, as well as the wider context concerning employment levels, social protection and growing living standards for UK citizens.
	Let me set out the background of this debate. As my right honourable friend the Chancellor set out in another place, our duty is to confront the wider global economic challenges that all nations are facing, and it is our concern to take critical decisions that will secure Britain's long-term economic future. Noble Lords will appreciate that this means combining British enterprise with ongoing investment in skills and science, as well as in our infrastructure, including housing. I want to stress that we must match that investment with genuine reforms that we hope will propel this country to a long-term lead in some of the most wealth-generating and dynamic sectors globally. Of course, that means ranging from science and modern manufacturing, through our finance and capital markets, into the education sphere and throughout our creative industries. Underpinning that focus is our continued fiscal discipline, where the Government continue to match public investment with widespread reform in welfare and our public services. By doing this, we seek to bring together a strong economy with real opportunity and security for our hard-working families and for our citizens in general.
	Section 5 of the European Communities (Amendment) Act 1993—the Maastricht Act, as it is popularly known—requires Parliament to approve the information sent by the Government to the Commission for this purpose. We set out such economic information in the Pre-Budget Report earlier this month, and that material forms much of the basis of what will be sent to the Commission. It is our duty to do what we can to support better planning and government thinking. So, by formally sharing information from the Pre-Budget Report with our European partners, we can also help to ensure an accurate data system in the EU.
	But to understand fully our economic position, we must also step back and consider the past year. There has been a virtual doubling of global oil and commodity prices. All countries have faced global inflationary pressures, yet the British economy has also had to deal with domestic inflationary pressures. Noble Lords will appreciate the comments of my right honourable friend the Chancellor who recently stated in the other place that the strength of a monetary and fiscal regime is how it performs, not just in the good years but also in the tougher years. So we must judge this year against that.
	This year is the toughest and most challenging for the economy in some years. Yet, as a result of the strong macroeconomic framework that we have developed, Britain now has high rates of employment, seeing some 6,000 new jobs every week. Our employment rate is now 74.9 per cent, with 28.8 million people in work, which is a rise of 2.3 million people since 1997. We are also on course to meet our inflation target of 2 per cent, not just for this year, but over the next two years. That is in spite of the wider domestic and international pressures. Likewise, house prices, which at one point were rising at 15 per year each year for three years and under the previous administration peaked at 25 per cent, have moderated to 3 per cent.
	Inflation this year is around 2 per cent and interest rates peaked below 5 per cent. We have also seen growth of 1.75 per cent, despite the wider economic context and without the recessions of past eras. To symbolise this, I remind noble Lords that, under this Labour Government, we are now in a 34th quarter of continued growth with low inflation, the first government of any party to achieve eight years of uninterrupted growth since 1805, and, all in all, we have now had 53 consecutive periods of growth.
	Let me take a moment to summarise the message of the Pre-Budget Report. The Chancellor announced that we were meeting our fiscal rules and that we are meeting the golden rule in this economic cycle with more than £16 billion to spare. He made clear that, alongside record investment in our schools and colleges, in our hospitals and in our housing, debt this year is forecast to be just over 36 per cent of national income, compared with 44 per cent in 1996–97.
	That is well below the 40 per cent ceiling of the sustainable investment rule, and will mean from now to 2010—a five-year period—Britain will see more investment than came through in the 18 years from 1979 to 1997. For the period of the current spending round, 2004–05 to 07–08, public sector net investment will rise by an annual rate of 15 per cent. Underpinning all that is our key objective to build a strong economy and a fair society with real opportunity and security for all.
	The Pre-Budget Report also sets out further reforms to support our response to the demands of globalisation, including plans to increase the supply and improve the affordability of housing, to strengthen the planning system, and to reduce further the regulatory burden on business.
	We set out our intention to create a world-class environment for scientific research and development, helping to improve the skills of the nation. But we must also meet the productivity challenge by focusing on certain key areas. This means continuing to improve competition, promote enterprise, supporting science and innovation, raising UK skills and encouraging investment. The Pre-Budget Report sets out our next steps to achieve this.
	We will take forward the goals of the 10-year science and innovation investment framework, with measures to create a world-class environment for health research. We will have doubled the science budgets since 1997, which will reach £3.4 billion by 2007–08. Alongside that, we will set out our strategy for tackling the long-term lack of supply and responsiveness of housing and launch a review, led by Kate Barker, to consider how planning in England can better deliver sustainable economic development that is delivered in a timely and transparent manner.
	We will seek to make progress on the Hampton review recommendations to reduce the costs on business of administering regulations. We will also introduce measures to reduce costs on business by removing unnecessary regulatory burdens, including those originating in Europe. We have announced an independent review to ensure the UK's intellectual property framework is appropriate for the digital age. We have published the interim report of the noble Lord, Lord Leitch, on the review of skills and will provide additional support for higher education exports, which will sustain the UK's world-leading position and attract more highly skilled overseas students.
	But a flexible and high productivity economy is underpinned by high quality public services too. This Government seek to deliver world-class public services through sustained investment and continuous reform. We are on course to meet the target set out in the 2004 spending review, which also included efficiency targets for all departments. As part of the figures we published with the Pre-Budget Report the Chancellor recently confirmed that the first £4.7 billion of savings, identified by the Gershon review, have been achieved this year. There has been on-target reductions and relocations of posts across the Civil Service. Ahead of schedule, £5.7 billion of assets have been sold. In the coming year, we will conduct a zero-based asset review.
	Let me quickly restate how we will achieve success. By combining our enterprise with investment in skills and science, infrastructure and housing, at every point matching investment with reform, Britain can lead in the world's most wealth generating and dynamic sectors, in science and modern manufacturing, in finance and capital markets and in education and the creative industries. With fiscal discipline, matching investment and reform, we can combine a strong economy with opportunity for all. That is the programme set out in the 2005 Pre-Budget Report, and that is the basis on which we will send updated information to the European Commission.
	Noble Lords will, I am sure, seek to discharge our duties under the Maastricht Act, to report on our main economic policy measures, and maintain our position, developed by this government, at the heart of the EU policy process. But I welcome your thoughts on this. I beg to move.
	Moved, That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2005 for the purposes of Section 5 of the European Communities (Amendment) Act 1993.—(Lord McKenzie of Luton.)

Lord MacGregor of Pulham Market: My Lords, I am grateful to the Minister for introducing the debate. I certainly shall come back to one or two points he has made, but I would like to begin with one or two smaller issues before I turn to the big picture.
	First, bioethanol has contributed to an environmentally friendly fuel. A previous Budget reduced the duty on bioethanol fuel, but not by enough. Therefore there was really no take up. It needed the renewable transport fuels obligation to make that a reality. With the noble Lords, Lord Carter and Lord Palmer, I was able to persuade the noble Lord, Lord Whitty—and I am extremely grateful to him as the Minister then concerned—to introduce a measure in the previous Energy Bill which enabled such obligation policies to be implemented. It took the Government rather a long time to take it up, but I am grateful that they have now done so, although, I have to say, it came later than we would wish and much behind a lot of other EU countries.
	As a result—and I declare an interest as a non-executive director of the company with overall control of this—British Sugar has announced that, following the granting of planning permission, work is now beginning on the UK's first bioethanol production facility at Wissington in Norfolk, to be in production, it is hoped, early in 2007. That is good news for farmers who seek alternative outlets for their sugar beet as a result of the sugar beet regime changes, and good news for the environment. But it also indicates that, with the right government policies, business responds.
	Secondly, the Pre-Budget Report referred to films, but not to other arts. I wish to draw attention to a serious problem facing our orchestras. Her Majesty's Revenue and Customs has decided that orchestras are now liable for class 1 national insurance payments on all fees paid to freelance musicians. Of course those orchestras are often composed of freelance musicians. It will collect these payments from 2000–01. That could amount to a £33 million bill, which would cripple many orchestras in this country, including one of which I am a patron, the New London Orchestra, and possibly annihilate some. I have written to the relevant Minister about this, but have not yet had a response. I am particularly concerned about the retrospective element of this likely bill, which the orchestras simply cannot meet. I would be grateful if the Minister could indicate any progress.
	The Minister referred to better planning. I have to say that two of the measures in the Pre-Budget Report certainly do not indicate better planning. I refer in particular to the about-turn on SIPPS, which I happen to think was the right decision. I think that it was ludicrous in the first place to allow SIPPS to be available for second homes, for wines and so on. But that was the Government's decision, confirmed until very recently. So, while I welcome the about-turn, I deplore the uncertainty for those concerned and the very bad planning from the outset. The other is the decision not to implement the gold-plating involved in the operational and financial review and accounts. I warmly welcome that, but who was insisting on this in the first place? The fact is that that has already cost companies—and I sit on a number of audit committees—a great deal of time and money in preparing for this. I think it is unnecessary because I do not think that it adds value but I wish that we never had to go down this gold-plating route in the first place. It indicates the kind of problem we face in trying to cut back the regulation bill that we now have.
	Now to the big picture. The Chancellor started well in 1997 until about 2000—with the exception of the £5 billion steal from pension funds that he introduced in the first year. Prudence was his middle name; he stuck to the two fiscal rules; and he did not squander the golden legacy. Since then, we see from the Pre-Budget Report and other economic analyses that his stewardship has deteriorated. Since about 2001, his borrowing forecasts have always been over-optimistic. Classically, so has his expectation of economic growth this year, when most other commentators were substantially downgrading it. I must say that the Chancellor's rapid delivery of the Statement and his monotonous reciting of statistics were obviously designed to cover the fact that he had now reduced his growth estimates for the year. No one was fooled; he was rumbled.
	The Minister mentioned the toughest year. Other countries faced the oil problem much more than us. No doubt we will hear more about that. But the Government's own actions have substantially contributed to the poorer economic growth this year. I can only deal quickly with some of them. There is the growing burden of taxation, with some of the highest business taxes in the OECD where, just five years ago, Britain had some of the lowest. The Governor of the Bank of England recently said that that was considerably responsible for the downturn in consumer spending.
	There is the growing regulatory burden, to which I have referred, which costs about £40 billion extra per year. For every regulation that is cut back, many more are added—rarely considering the value added from some of them.
	There is current public spending, showing real growth of 4.5 per cent, 5.5 per cent, 5.1 per cent and 3.1 per cent in the past four years—way above the growth of the economy as a whole. That increase in health and education expenditure, as recent reports—not least the King's Fund report on the health service—show is not yielding the benefits that the Chancellor expected.
	There is the huge increase in public sector employees. We keep being told, year after year, that they will be cut back in future, but the fact is that the increase this year has more than negated any savings made on public sector employees. That will be a substantial burden for some time to come.
	There is a record trade deficit. The Minister referred to inflation. I think that the huge amount of manufactured imports that we now receive from China and elsewhere are a major contributory factor to that low inflation, but that will not necessarily last. There could also be currency valuation changes that cause a turnaround in the years ahead. Meanwhile, we have a record trade deficit.
	The household savings ratio, I am told, is the lowest since records began, with business investment apparently headed the same way.
	I could go on. Productivity growth, which the Chancellor said was one of his benchmarks, is the lowest for a generation. The other benchmark is Britain's world competitiveness, where we are rapidly slipping down the world league table. No wonder the Chancellor is getting boxed in. He will not be able to find another £2 billion from an oil tax increase as easily in future.
	That brings me to the fiscal rules. The golden rule that the Government should borrow only to invest and not to fund current planning is now met only by totally altering the cycle to fit the Chancellor's requirements—once backwards to 2007 and now forwards. It is obvious that those are the years when public expenditure was rather lower as a proportion of GDP, so the Chancellor could make the cycle work by changing the rules. Some people have referred to changing the goalposts. I think that it is much worse than that. The referee can now make up the rules as he goes along. It is the equivalent of saying: "I will allow a goal even if you are miles offside and a disallowed goal is to make the result the one I wanted all along".
	Here is the real Achilles' heel of this Pre-Budget Report. I have cited the percentage increases in the past four years. The Chancellor can now make his figures fit only by predicting 1.8 and 1.9 per cent growth from 2007 to 2009–10. As we heard just now, that takes no account of the extra cost of the EU rebate, which the Chancellor must now allow for as a result of the Prime Minister's summit cave-in. The other cave-in on public sector pensions—on the increase in the pension age—does not give us much comfort that the Chancellor will stick to that level of spending in those years. Does anyone seriously believe that the Government, in what will be coming up to an election year, will deliver public expenditure targets way below any that they have recently achieved? Does anyone seriously believe that the French will acquiesce without a veto on CAP reform in 2008? Experience in government and in the EU suggests otherwise.
	As for the sustainable investment rule, I am growing increasingly concerned about the huge potential liabilities building up in what is effectively off-balance sheet financing—the PFIs, the PPP, and the Network Rail classification, which we would never have allowed. That is another decision to make things fit. In an excellent pamphlet on the PFI last year, the Centre for Policy Studies authors calculated that the Government are committed to paying more than £110 billion through the PFI alone between 2003–04 and 2028.
	Of course, I supported PFI in the past, but the question is the scale that is beginning to develop. We need a much better understanding of how all that affects the sustainable investment rule. It obviously brings forward investment, but by being off-balance sheet there could be a substantial cost later.
	To sum up, the PBR shows that the Chancellor started well but has now squandered the golden legacy. The fiscal rules have become almost irrelevant. The ultimate irony is that if the Chancellor becomes Prime Minister in this Parliament, he will inherit a deeply tarnished and very difficult legacy, which will be his own.

Lord Haskel: My Lords, I thank my noble friend for giving us this mid-term report. I think that it was rather a good report. I found the words of the noble Lord, Lord MacGregor, rather ungracious, if I may say so. Of course, one can pick holes; of course one can get forecasts wrong; but the noble Lord did not really look at the picture as a whole, as he promised. If he had looked at the picture as a whole, he would have seen that we are enjoying the longest period of sustained growth in our history. That comes together with stability in the form of low interest rates, low inflation and employment at the highest level in our history. He would have found that that was quite a cheerful picture.
	I know that my noble friend said that, but so did New York University last week, when my right honourable friend the Chancellor received an honorary degree. So did the Organisation for Economic Co-operation and Development and many other independent observers. That does not come without a cost. Most people are working longer and harder; many people have had to learn new and better skills; most people have had to endure more frequent change and disruption. As a result, many people's lives have become a lot more stressed.
	As this is the season of good will, perhaps noble Lords opposite will join me in congratulating and thanking everyone working in our economy and the Chancellor on their achievement. The slogan of the Swedish Social Democrats reflects my view: "Proud but not satisfied". Not satisfied because there are warnings of hard times to come. Those warnings are probably right. The world is undergoing the biggest economic restructuring in our lifetime, leading to huge trade imbalances. There are threats from emerging markets, leading to manufacturing jobs being transferred overseas and service jobs being outsourced. Energy and raw material costs are rising alarmingly. All that is taking its toll.
	In the past, that would have meant recession and unemployment, thanks to the laissez faire policies and crude market economics that were applied then. Not any more. No longer can we leave people alone and helpless to face those challenges. We must enable and equip them to face them. Thanks to the stability that we now have in our economy, we can take steps to deal with those threats. That is the essence of the Autumn Statement: the steps that we are taking to meet those challenges. My noble friend spoke about them: raising skill levels to do more challenging and technically sophisticated work. They are steps such as the national employer training programme.
	Do noble Lords know that, according to the Leitch report, one third of all adults do not have any basic school-leaving qualification? That is a big hill to climb. The Minister spoke about investing in schools, hospitals and infrastructure to bring our services up to international standards. He spoke about investing in science, engineering and technology to help our companies be innovative, productive and competitive. In addition, there is support for families, pensioners and children to enable them to maintain a decent work-life balance and quality of life. There is also caring for families by implementing the Barker report and caring for the environment by helping with biofuels, clean-coal technology and carbon capture. In other words, this is an autumn statement on the side of people not economic theories.
	The noble Lord, Lord MacGregor, spoke about public sector employees. I wish to make two comments about that. First, throughout the economy, as he knows, organisations are working hard to raise skill levels, in the public and private sectors. That means that more highly skilled people are taken on and fewer skilled people have to go, but not all of them: some are retained for skills training and so they temporarily inflate the numbers. Why is that acceptable in the private sector and not in the public sector?
	Secondly, the noble Lord probably includes in his figure for the number of public employees those working in social enterprises. Many social enterprises are owned by local authorities but they are just as commercial as businesses in the private sector. They are competitive because they are local; they are innovative because they have local knowledge. The range of work that they do is enormous: social housing refurbishment and development, civil amenities, clearing rubbish, youth development and education, bulk waste removals and recycling. Many enterprises work for both the public and private sectors. Many thousands work in those enterprises, which are now in the mainstream of business. Does not the Minister think that they should no longer be classified as public sector employees, unless, of course, noble Lords opposite want to get rid of them?
	I know that many noble Lords opposite think that the economic cost of all the work outlined today is too high. Some call it "sharing the proceeds of growth" or similar weasel words. But I think that it is the social cost of not doing anything that is too high, and therein lies the difference between noble Lords on this side of the House and those on the other side.
	I do not want to end on a difference; after all, this is Christmas, the season of goodwill. The autumn statement speaks of fairness, and so did my noble friend—a fair society. I think that we are all for that; some think that it is the essence of Britishness. So, in the spirit of Christmas, can we agree that a fair society is what we all want to achieve? We will have our different ways of getting that but it is a progressive objective that we can all share. As I said, this is an autumn statement in which we can take pride but there is a lot more to be done.

Lord Northbrook: My Lords, the Minister's opening speech reminded me of a speech from a member of the old Moscow politburo, with its comments that if there was full employment all was well in the land generally. I would like to delve behind the figures and the general economic situation in more detail. I declare an interest as an investment fund manager.
	As the noble Lord, Lord MacGregor of Pulham Market, has mentioned, economic growth forecasts have been radically reduced. Let me remind noble Lords what the Chancellor was forecasting for GDP growth last March. The figures were as follows: 3 to 3.5 per cent for 2005, 2.5 to 3 per cent for 2006, and 2.25 to 2.75 per cent for 2007. In September, the Chancellor admitted to the IMF that in 2005 the UK would grow only,
	"at or slightly below our cautious view of trend",
	which implied a 2.5 per cent growth rate for the year. The Pre-Budget Report has reduced those figures further to 1.75 per cent for 2005, halved from the top budget forecasts in March; and 2 to 2.5 per cent for 2006; but raised it, slightly strangely, to 2.75 per cent to 3.25 per cent for 2007. Although those changes fall well short of a recession, they are nevertheless a major adjustment downwards.
	There is suspicion, too, that a lot of growth is being funded in a particularly unhealthy way, notably either by mortgage equity release or unsecured lending, and borrowers are being stretched too far. Between the start of 2000 and September 2005, total UK personal debt has increased by £521 billion—86 per cent—from £609 billion to £1.13 trillion. Total secured lending on homes has increased by £445 billion—90 per cent. Total consumer credit lending has increased by 66 per cent and total credit card debt has increased by 75 per cent. In November, figures revealed that mortgage repossession orders had increased by 66 per cent since a year ago. Personal debt remains at a dangerously high level. The UK economic growth looks particularly anaemic compared to the recovering US economy and the fact that, according to the shadow Chancellor, the UK economy is growing more slowly than the economies of 18 out of 25 members of the European Union.
	Lower than expected growth means lower than expected tax revenues. The Budget estimate for 2005–06 of £462 billion for net taxes and national insurance contributions has been cut back by no less than £4 billion to £458 billion in the Pre-Budget Report and by about the same amount for 2006–07. The shortfall comes, as is well demonstrated in table B13 of the Pre-Budget Report, in the main from lower income tax and VAT receipts. It is notable that the Government's total tax take is estimated to increase by no less than 80 per cent since 1997 but still there is a need to raise more taxes. The danger is that that increase in taxes, especially on the corporate sector, will further weaken the economy. When the extra tax revenues go into the public sector, there is no great evidence that they are being put to good use. Some 5.8 million people are now working in the public sector, which has grown twice as fast as the private sector since 1997, and I understand that one in every four new jobs is in the public sector.
	Yet the sector faces its own problems compared to the private sector. According to the autumn review of the National Institute of Economic and Social Research, inflation in the public sector is 5.5 per cent, almost three times the inflation target of 2 per cent. The independent King's Fund, in its publication An Independent Audit of the NHS under Labour, says that almost 73 per cent of the extra funding for the NHS has gone in cost pressures. According to the World Economic Forum, UK efficiency of government spending has fallen from fifth in the world in 1997 to 26th in 2005.
	Despite the extra revenue being raised by the Government, the public sector net borrowing requirement keeps increasing. For 2005–06 it is forecast to rise from £32 billion to £37 billion, and for 2006–07 from £29 billion to £34 billion. The Government forecast this requirement to total no less than £151 billion over the next five years, some £17 billion more than anticipated in March. I ask the Minister: is borrowing getting out of control?
	What has happened to the much-vaunted golden rule, the rule that within the economic cycle the Government will borrow only to invest and not to fund current spending? This, as my noble friend Lord MacGregor has already stated, has been possible only because the Chancellor has moved the start date for the economic cycle from 1999–2000 to 1997–98 while moving the end date as well. So when the Chancellor announced in the Pre-Budget Report that the rule will be met by more than £16 billion, the sum would have fallen dramatically to £3 billion under the old start date. The Institute of Fiscal Studies sums up the situation well:
	"Mr Brown now says the cycle began two years earlier and will end three years later than he thought in March . . . These fortuitously timed revisions strengthen the case for asking an independent body to date the cycle".
	Does the Minister agree with that?
	How does the Chancellor make up the tax shortfall, apart from borrowing more? In a nutshell, he penalises business. This takes us to the detail of the pre-Budget measures. First, he clobbers the oil industry just at a time when higher oil prices were enabling oil companies to undertake vital exploration, siphoning no less than £2.3 billion out of their coffers. Not content with that, he moves on to attack smaller businesses by removing the current zero rates and minimum rates to prevent incorporation for tax purposes, thereby scooping in £530 million. Once again, as I have said many times previously, smaller companies have had the ground rules changed. How can companies make long-term plans when the tax regime they operate under keeps changing?
	The Chancellor is also making plans for what can be called the "son of development land tax". This Old Labour-style move will achieve just the opposite of what the Government intend by discouraging marginal building development and thus putting more pressure on house prices, which the Minister recently commended for declining.
	Another example, as in the case of smaller companies corporation tax, of the Government changing the rules has been in the case of qualifying investments for SIPPs, as already mentioned by my noble friend Lord MacGregor. Having brought in primary legislation and the regulations to go with it, the Government have changed their mind at the last minute. As my noble friend has said, I think that they have made the right decision. However, it has caused chaos and confusion to those who felt that they had been given a clear indication that residential property would qualify for a SIPP. Why was this change made so late in the day? Will he, on behalf of the Government, apologise to those who planned to buy such property in their SIPPs and whose hopes have been dashed?
	A notable element of the Pre-Budget Report was the Chancellor's decision to cut public spending as a share of national income. But as Anatole Kaletsky, normally a staunch government supporter, queried in an article dated 12 December, can we believe the Chancellor's numbers? Mr Kaletsky states that the Chancellor is in theory cutting public expenditure from a peak of 5.5 per cent in real terms in 2003–04 to 3.1 per cent in the current financial year, 2.8 per cent annually from April 2006 and then just 1.9 per cent a year after April 2008. Since the British economy is assumed to grow by a trend rate of 2.5 to 2.75 per cent throughout this period, the effect of such public stringency would be to reduce government spending and thereby in theory the burden of taxes needed to finance it, from a peak next year of 39 per cent of GDP by 0.7 per cent of GDP in the four years to 2010–11. That is equivalent to about £9 billion in today's money. As the Institute for Fiscal Studies noted, such spending reductions would further intensify pressure for efficiency gains in the public sector. How can we guarantee that this will happen when the money that so far has been thrown into the public sector has had so little effect?
	The gains envisaged so far under the Gershon report and elsewhere also look uncertain. Ruth Lee, the director of the Centre for Policy Studies, pointed out recently that between June 2004 and June 2005, the number of civil servants stayed the same but the number of public servants increased by 95,000. The King's Fund report highlights increasing deficits in NHS trusts and few extra funds for the front line. Spending has doubled in eight years, but the public remain dissatisfied. Professor Nicholas Bosanquet's report for the think tank Reform highlights that the NHS is heading for debts of almost £7 billion by 2010 unless it achieves a productivity miracle. The ONS has shown that public sector productivity has declined, particularly in the NHS and education.
	Anatole Kaletsky's conclusion is very interesting:
	"It seems that Mr Brown will face a clear choice if he becomes Prime Minister in the second half of this Parliament. Either he will have to become a considerably more radical reformer of the public sector than Mr Blair, or he will have to abandon his forecasts for public spending".
	I fear the latter, with all its consequences, will be the reality.

Lord Marlesford: My Lords, my noble friend Lord MacGregor rightly paid tribute to the Chancellor for the way in which he ran the economy in the early days of his reign. One of the things the Chancellor was particularly good at was getting his forecasts right when often the commentators thought he had them wrong. Therefore it is particularly disturbing to note that between March 2005 and December 2005, he actually finds that he has to announce that the rate of growth for this year that he expected in March has been halved to 1.75 per cent. I was interested to note that the Chancellor said "1.75 per cent". In another place he used the words, "one and three-quarters per cent", which sounds better than 1.7. The independent forecasters are talking about 1.7 per cent. That is a huge change over such a short period that one must worry about the forecasts for the following years. That is a reasonable position to take, however much one may give the Chancellor credit for getting it right in the past. To get it so massively wrong in such a short time is worrying.
	I recognise that things in the world economy can, do and have changed very rapidly indeed. The British economy is vulnerable to a number of outside pressures. International factors such as the sustainability of the American economy have an effect. Much of the world depends on the American consumer and the American economy maintaining its remarkable momentum and the recovery it has made post the dotcom collapse and 9/11. I turn to the risk of protectionism, and I am afraid that the Hong Kong/WTO deal does not in any way reduce that risk. There are also the potential traumas from terrorism, which could have a huge impact on the price of oil. As all noble Lords know, an increase in the price of oil is the straightforward equivalent of a tax increase. It is thoroughly deflationary, but at the same time it can be inflationary on prices.
	I want to focus my remarks primarily on the domestic situation. My noble friend Lord Northbrook has quoted Anatole Kaletsky. I should declare an interest as a director of GaveKal, an outfit based in Hong Kong. The "Kal" part is Anatole Kaletsky. He and I work quite closely together and I agree with him on many things.
	He rightly said, as my noble friend quoted, that the Chancellor has decided to make major cuts in the growth rate of public spending, but, frankly, I am not sure whether he will be able to do so.
	In 2000 he let out a whole tribe of spending imps and I wonder whether he can put them back again. The Pre-Budget Report suggests a public sector net debt—the old PSBR as used to be—of £452 billion. That is a great deal of money by any standards. But the attempts to get spending down through greater efficiency have not really worked very well, as one of my noble friends has said. The Gershon cuts have been outweighed by the increases in the number of public servants. I think the figure is 90,000 in compared to a target of 85,000 out—and the 90,000 is actual.
	Many of these jobs have come about through additional regulation. Contrary to what the noble Lord, Lord Haskel, said, much of the regulation has become a job creation programme. It means the Government digging the holes in the ground while the rest of us have to fill them up.
	Part of this increased regulation comes from Europe. In spite of the good intentions of the new Barroso Commission, it is clear that the Commission at the official level—I shall be interested to hear whether the noble Lord, Lord Tomlinson, who was with me on these occasions, has taken the same lesson—is largely out of control. As the German vice-president of the Commission, Günter Verheugen, put it to Members of your Lordships' Select Committee, officials in the Commission seem to see their role as keeping the chauffage of the Commission going. This could largely negate the attempts of the excellent Swedish vice-president, Margot Wallström, to persuade member countries of the EU that the Commission has turned over a new leaf. Anyone who looks at the EU Commission programme for 2006—which I have done, and I am sure the noble Lord, Lord Tomlinson, has also done—will see that it is full of nonsense. One hopes that it will never get beyond even the Commission—I wish it did not spend its time doing this—and certainly one hopes that it will not get through the Council of Ministers. But that is what is happening.
	Not only have the Government failed to reduce the flow of regulation from Europe, more seriously—and more culpably, probably—they have failed to prevent the British Civil Service from gold-plating what emerges. I will give three quick examples. First, as regards the cross-compliance rules for the new CAP regime, Defra has had what I can only call the impertinence to tell farmers, by the most detailed rules, exactly when and where they should go on their land to prevent damage to soil structure from water logging. Handling the land is a basic skill of farm husbandry; it is what farming is all about. The farmers in Suffolk, where I come from—and I am one of them—have heard rumours that inspectors are to be hired and appointed who have been recruited from redundant shelf-stackers in Tesco. The idea of that sort of thing is beyond belief. Even at the height of Soviet collectivisation, I doubt whether the Kremlin actually told farm managers how many yards into a field they could drive their tractors when it was raining. That is one example.
	As to the second example, the Government have just announced that they are to reduce the threshold from €3,000 to €1,000 of something called the droit de suite. This is a system of a 4 per cent tax on works of art of living artists every time they change hands in the market. It is a pretty nonsense scheme anyway. It was invented by the French—I am told they wish they had not invented it, probably rather like their 35-hour week—and 25 per cent of the proceeds of this go to a bureaucracy invented for the purpose called the Designers and Artists Copyright Society. To reduce the threshold will add tens of thousands of cases to be administered and monitored. I have no interest in this area at all—I am just fascinated—but I have talked to some of the people who are going to have to try to run it and they are horrified.
	Let me give an example in the area of the third money-laundering directive from Europe, which the Government have just endorsed. To try to identify terrorists or serious criminals by monitoring money laundering is clearly sensible—although, frankly, to be effective, it is probably best that it is intelligence-led. But the silly thing about this directive and its two predecessors is that it brigades with terrorism and serious crime, tax evasion—something of a quite different order of magnitude as a threat to the world's security which should be dealt with by other means. The real absurdity is that the directives place huge penalties on anyone in the whole of a widely defined financial sector—which includes the accountancy and legal professions and so on—who fails to report a suspicion, however small, to an organisation called the National Criminal Investigation Service. Not surprisingly, over 90 per cent of the reports are, after investigation, found to be trivial or irrelevant. These directives are an example of the huge burden on a large part of business.
	My noble friend Lord MacGregor referred to the PFIs. These are intended to keep spending off the balance sheet. In a sense, that is a good idea but, as anyone who knows about companies will know, it can also be extremely dangerous. The latest published figure that I have seen—perhaps the Minister will be able to give us a more recent one—is that a year ago PFI deals totalled some £43 billion. That would have put the public sector debt up from 35.4 per cent of GDP—comfortably below the Chancellor's ceiling of 40 per cent—much closer to 39 per cent. There are other examples of off-balance sheet debts. Obviously Network Rail is one.
	I should like to say a word about pensions. If ever there was a big issue that this Government have failed to face it is the coming pensions crisis. Of course it is a political hot potato but they have simply run away from the public sector unions. Both public and private sector pension prospects are in crisis. The simple question is: who is to pay—the Government, companies, taxpayers, individuals? The actuarial calculation of a balanced economy in the UK at present, with the demographic changes that have already taken place, suggests that the retirement age should be 72. Yet in the public sector, every employee is guaranteed an inflation-proofed pension at an absurdly early age. Introducing inflation-proofing into the public sector was a huge mistake made, I am afraid, by the Heath government.
	In the private sector, the problem of shortfall arises from three factors: Mr Brown's assault on the surpluses of pension funds; the decline in interest rates; and the reduction in the investment returns of pension contributions. It is a huge problem, and one which the Government show no sign of being prepared to face.
	Finally, monetary policy is a powerful weapon, but one which should be used for contra-cyclical purposes and not to stimulate an economy where there is a need for structural reform. Like all weapons, it needs ammunition, which means scope to adjust interest rates up or down. That is why in our relatively neutral situation, where we do not quite know what we will have to do—it is the same in America—interest rates are roughly at what one could call a normal rate which should mean a real return of at least 3 per cent. Thus the Bank of England, with 4.5 per cent, and the Federal Reserve, with 4 per cent, are comfortably placed.
	I am a little more worried about the European Central Bank. On this I do not agree with Anatole Koletsky that the ECB rate should be lower—2.25 per cent does not give a lot of scope for adjustment. However, I pay tribute to the ECB for refusing to use monetary policy as an excuse for Germany and France not to restructure. They have always seen monetary policy as providing liquidity for cyclical reasons. In that, they are quite right. An example of misusing this is Japan, which has had zero interest rates for a decade and is only now beginning to recover.

Baroness Royall of Blaisdon: My Lords, I remind noble Lords that the indicative time for the debate is 10 minutes for Back Benchers.

Lord Tomlinson: My Lords, my noble friend Lady Royall should not be too harsh. All the noble Lord, Lord Marlesford, was doing was showing the difficulty of forecasting—he got that one somewhere over 30 per cent wrong, which made everybody else's record in this debate look pretty good. I did not realise, however, that my shadow loomed quite so large over the noble Lord. I cannot share his recollection of the meetings with Commissioner Verheugen or Commissioner Margot Wallström, the main reason being that on that occasion I was unable to join him in the visit to Brussels. So I was not there.
	I thank my noble friend Lord McKenzie for giving us the opportunity of this brief debate. The past eight and a half years have been years of great economic progress in many areas. Inflation is firmly under control and set to remain stable and low. It does not enter into the political discussion as a factor. Interest rates are low and stable, and near to the lowest level for a generation. Again, it is unquestioned. Employment is at a record high. Our level of unemployment is the second lowest among the G7 countries, today standing at 4.7 per cent. Public finances, despite what has been said, remain sound. Borrowing in 2005–06 is forecast at £37 billion and UK debt is lower than debt in the United States, Japan, Italy, France and Germany. Cyclically adjusted, net borrowing is at 2.2 per cent of GDP and will fall over each of the following five years to a point where it is 1.4 per cent of GDP.
	We have the longest continued quarter on quarter growth. Sharing in the injunction of my noble friend Lord Haskel to enjoy Christmas, I shall show the spirit of Christmas by saying that that process began under the previous Conservative administration. But for every quarter in the past eight and a half years, it has continued under this Government. Against that background, I do not feel in a frame of mind to take lessons in sound economic management from noble Lords opposite.
	I listened with great interest to the noble Lord, Lord Northbrook, as he nitpicked his way through variations on forecasts. All I can say to him is that I wish investment fund managers had had as consistently good a record over the past eight and a half years as my right honourable friend the Chancellor of the Exchequer. He was at least brave enough to admit that his profession—though not necessarily he—had probably done more than any other to destroy the capital savings of many people in this country during that period, a period in which their investments collapsed.
	During the 18 years of the Conservative government, the Bank of England had no independence. We had the two worst post-war recessions. Inflation exceeded 10 per cent per annum. Interest rates hit 15 per cent. We suffered despite the dynamic leadership of that great trio, the noble Baroness, Lady Thatcher, and her cohorts, the noble Lords, Lord Lamont and Lord Lawson. Despite the collective efforts of such a trio, we suffered a humiliating exit from the exchange rate mechanism. Unemployment broke through the three million barrier; 1.5 million people suffered negative equity; and in the three years from 1990 to 1993, some 250,000 people had their homes repossessed. In many respects, the United Kingdom is today fully equipped by the Government's economic and policy reforms to continue to prosper in a rapidly changing global economy.
	I welcome en passant a relatively minor, but important, part of the report. I refer the Minister to paragraph 3.101, on boosting higher education exports. I hope that, by the time he comes to reply to this debate, he will be in a position to look at those bullet points in box 3.9 and assure us that the promise to,
	"allow all international students on completion of post-graduate degree, or an undergraduate degree in a shortage sector, to work in the UK for up to 12 months, benefiting up to 50,000 people",
	and the promises after two subsequent bullet points will be put into effect pretty quickly and not be the subject of great inter-departmental deliberation for years to come.
	However, despite all the praise that can be rightly heaped on the Government for their economic performance and their economic prospects, I prefer to spend the remaining four minutes of my speech on four areas of ongoing concern. First, as I have said on previous such occasions, while our record on productivity may be better than it was a couple of years ago, it is still poor and lags behind the productivity record and performance of economies such as those of the United States and France. It would be a brave and probably foolish man who would bet on our being able to match productivity performance in some of the new economies. We still have not found the solution to the question of productivity. I merely highlight it as one of the potential weaknesses in our economy in the future.
	Secondly, although I welcome the interim report of my noble friend Lord Leitch, we still have a serious skills shortage. This has been a continuous factor of life for as long as I have been engaged in political activity. When I was in the House of Commons during the early 1970s, the agenda whenever we met the CBI was the mismatch between skills available and the demands of industry. The agenda remains the same today, as it has been at so many of the intervening points. Sooner or later—I believe that it must be sooner—we must mobilise our further education system and other parts of the higher education system to correct the mismatch between skills in supply and skills in demand. We have consistently failed to do that over three or four decades.
	I turn to my third area of concern. I may be old-fashioned, but I do not like current expenditure being described as investment. I understand how paying for staff wages, paying for staff pensions and paying for staff training can be described as investment in the human capital of an enterprise, but when I look at investment, I am much more concerned by the additions to the gross domestic fixed capital formation and prefer that to be regarded as investment. In that respect, we still have a worryingly poor record.
	The fourth of my concerns is in relation to science and technology. There are areas of education and investment that are too largely neglected. I do not propose to say a great deal on that subject, because I was very comforted when I saw on the speakers' list the name of my noble friend Lord Bhattacharyya, and I know that he is going to express himself fully in that area—but I sound my concern to the Minister.
	In conclusion, clearly much has been done. There is a record of which the Government can and should be rightly proud—and I share in their pride. However, there is still much to do, and I have suggested to the Minister four areas in which care and attention must be given in the years ahead.

Lord Patten: My Lords, in declaring my interest, as I should, in investment, financial services and business areas, can I also say something—bursting with good will as I am—to the noble Baroness, Lady Royall, who sits on the Government's Front Bench? She popped up a moment or two ago to talk about indicative timings in this debate, but this is an extremely important debate. I can well understand why a Government Whip wishes to see speeches as curtailed as possible, following the sandbagging that the Pre-Budget Report was given by my noble friend Lord MacGregor of Pulham Market, my noble friend Lord Northbrook, in his notable speech, and my noble friend Lord Marlesford. This is an extremely important debate and it should be properly conducted.
	I was never judged devious enough in another place to be called to service in the Whips Office, but I am sure that any Whip will always wish business to be conducted as quickly as the noble Lord, Lord McKenzie of Luton, managed to get the Consolidated Fund Bill through this Chamber—in 46 and three-quarter seconds. But I must tell the noble Baroness, Lady Royall, that the terms of trade in this place are changing slightly towards being not only exhorted but told exactly how long one can speak in an open debate. I say that bursting with good will, as the noble Baroness says.
	I cannot take such a benign view of the Pre-Budget Report as the noble Lord, Lord Tomlinson. I have three points to make. First, I congratulate the Minister and his business manager colleagues on the timing of this debate. There is a splendid sense of pinpoint timing in giving us the opportunity to debate these issues, as the Prime Minister comes back from what many judge to be a disastrous period in Brussels in the EU presidential seat, having given agreement to what is, by my calculations, a £2.5 billion a year increase in the UK's net contribution to the European Union, made up of our £1 billion per annum reduction in the British rebate and the annual increase in the overall EU budget between 2007 and 2013. What a triumph this has been—doubtless—for the United Kingdom, and all in pursuit of that mythical and unholy grail of convergence.
	There has been little reported convergence between the Prime Minister and the Chancellor on this issue—so I have two questions for the noble Lord, Lord McKenzie of Luton. First, in this era of open government, when the Deputy Prime Minister, who has been judged to be unsackable, has gone out on manoeuvres to explain quite how and why he dissents from the Prime Minister's education policy, and when the Prime Minister, the Deputy Prime Minister and the Secretary of State for Education are fighting like ferrets in a sack over that issue, may I ask, in an equal spirit of openness, whether the Chancellor of the Exchequer—who is also unsackable, as power ebbs away from the Prime Minister—agrees in advance to the European Union settlement? I am sure that the Minister, with his characteristic openness and courtesy, will wish to say yea or nay to that.
	Secondly, as the settlement paves the way inexorably for an increase in Mr Brown's budget deficit, because it will mean more borrowing and more tax increases, either direct or by stealth, does this decision not reopen the very basis of the Pre-Budget Report, as my noble friend Lord MacGregor of Pulham Market and others of my noble friends have said? So when is the Chancellor coming back to revise the Pre-Budget Report?
	My second point about the Pre-Budget Report is the style and nature of the report itself. It is an authoritarian and statist document. Just look how it refers on page 1 of the Government's objective being to "build a strong economy". Governments do not build anything; people by their activities, choices and endeavours do that. There is also the totally self-indulgent and fallacious claim on page 13 that the Government are meeting their strict financial rules over the cycle. The cycle is simply what the Chancellor of the day decides the cycle should be. The poor old Comptroller and Auditor General in the National Audit Office has said, in his Audit of Assumptions for the 2005 Pre-Budget Report, that—and I think he is writing in complete intellectual exhaustion here—
	"There is no ideal way to define the cycle".
	That is what the nation's auditor has said.
	My noble friend Lady Noakes on the Front Bench earlier described herself self-deprecatingly as "a jobbing accountant"—a very unlikely description of herself. I do not think, when she was either a "jobbing" or a considerably more high-powered accountant, she would ever have let herself draft in an audit document that "there is no ideal way" to define something. I think Sir John Bourn can write that again. I am seriously worried that the National Audit Office is going down the same track as the Government Statistical Service, if that is the best we are going to get.
	If we are to base so much on assumptions about the beginning and end of the cycles, as this Pre-Budget Report does, let it be done by an independent body, as Mr George Osborne, the Shadow Chancellor in another place, has so cogently argued. After all, we have the Monetary Policy Committee under that substantial figure, the present governor, Mr Mervyn King, who is fast becoming the Alan Greenspan of western Europe. At long last we have independent oversight of our sadly damaged, not to say debauched, national statistical service. As I understand it, if this Government will not introduce independent oversight of the setting of the cycles, the next Conservative government will.
	No right reverend Prelates are present but, with regard to the nature and style of the report, I point out how sad it is that it contains not even a fleeting discussion of the moral basis for public expenditure, whether expressed in neutral, secular or faith-based terms.
	My third point is on growth. We are certainly seeing convergence on that with the rest of Europe. Alas, our growth rates are hardly likely to better the average across Europe in 2006. Why, after the excellent Tory legacy that had underpinned the growth rates of recent years, has this been allowed to happen? While I recognise that there have been oil shocks and other economic shocks the country and the Chancellor have had to face, why has he gratuitously tilted the economy towards the public sector? Surely the golden rule about public expenditure is to spend by stealth, not advertise that tomorrow more and more money can be spent. Indeed the Chancellor, after his prudent first few years, has gone into what one might describe as a middle-years Chancellor crisis period, telling the public sector that the time has now come to spend, spend and spend again. That has been a grievous mistake, and the whole country will pay for it.
	On the other hand, the Chancellor has done very little to help productivity. There is much over-regulation, as my noble friend Lord Marlesford pointed out in his three brilliant examples. I cannot wait to see these flooded-field operatives walking in front of his tractors if he dares go on to a waterlogged bit of territory. With a few notable exceptions, such as financial services, we are now far less productive today than, for example, France.
	Yet with consumers and governments no longer able to drive forward economic growth, we are increasingly going to have to look towards the corporate sector. I do not think the Pre-Budget Report is straight with our people on the fact that, as consumers cut back on household debts, as household debt continues to rise, as the housing market catches breath, and as tax rises loom larger and larger in prospect in the minds of both individuals and the corporate sector, it is to the corporate sector, not the public, that we must turn.
	The trouble is that firms may well decide not to spend more money on capital goods, not to restock and not to employ more people due to the new uncertainties about demand, the new fears about the tax regime, and absolute utter exhaustion with the regulatory burden—all three of which are the responsibility ultimately of the Chancellor of the Exchequer.
	Having carefully gone through the report I see not one mention of the word "countryside". This is an entirely urban report. Doubtless when the Minister winds up, he will correct me if I have missed any mention of the word "countryside". But we live in a period of stretched rural services, of villages bereft of basic amenities, of farmers losing money at a higher rate than at any time since 1945 and of real, if scattered, rural poverty, which concerns me very much. Council tax support goes increasingly to towns, not to the countryside—the share-out mechanism is biased against rural areas. In the south-west, where I spend part of each week, I see, alas, considerable rural poverty around the towns to which otherwise great help is given. Given the sparse scattered populations who have great distances to travel, the Chancellor is ensuring that the poorest in the countryside are far less likely to have proper access to the services that they should have, and which their more numerous urban brethren enjoy.

Lord Tomlinson: It is in table 7.1; I have found it.

Lord Patten: I apologise. I knew that I could rely on the noble Lord to have read the document with great care. I thank him for pointing that out, for which I am grateful.
	This Pre-Budget Report has been very strongly criticised. On the night on which the Second Reading of the London Olympic Games and Paralympic Games Bill has been deferred to the new year, I pass the baton of that criticism to my noble friend Lord Hamilton of Epsom.

Lord Hamilton of Epsom: My Lords, I am most grateful to my noble friend. In a seasonal spirit of good will, I congratulate the Chancellor on his u-turn on self-invested personal pensions. What I would like to know from the Minister is what on earth was going through the Chancellor's mind when he thought that it was a good idea to allow people to invest buy-to-let properties, fine wines and what are known as "collectables" in pension schemes. These things are, by their very nature, extremely speculative. Buy-to-let properties involve enormous management problems. Like my noble friend Lord MacGregor I am very perplexed about why the Chancellor ever thought that was a good idea. The impact he has had on institutions and organisations which have spent enormous sums setting up ways to channel the relevant money, and, indeed, on individuals who have already bought houses which they thought would be pension investments has been quite astronomical. It leaves the Government looking pretty absurd for having started this hare running in the first place and for having subsequently shot it.
	As my noble friend Lord MacGregor has already observed, we have seen the evolution of the Chancellor from the first years of his period of office in the Treasury, when he had a very powerful grip on public expenditure. He was called the Iron Chancellor. He endlessly referred to prudence; that word seemed to appear regularly. But very quickly prudence turned into what I think in the parlance is known as "a bit of a slapper", and money was poured into health and education. That was done when those public services had not really been reformed at all. Indeed, not only had they not been reformed, many of the rather modest reforms that had been introduced by a previous Tory government were reversed and abandoned. The press at the time had a theory that the Chancellor was resisting any reform of public services. Knowing that they were not reformed and knowing that they were not in a fit state to take endless extra money, he still poured the money in. Many of us are extremely perplexed about the Chancellor's motivation for doing that.
	The result, of course, has been that wages have risen, the quantity of administrative staff has increased enormously and—answering the point made by the noble Lord, Lord Tomlinson—productivity has absolutely plummeted. Something like 73 per cent of the extra money that has gone into the National Health Service has gone into cost pressures and not to extra treatment of patients. That is a pretty sobering thought. It is now rather late in the day, after eight years, that the Government are admitting that the strategy has failed. They are now revisiting the whole question of bringing market-oriented reforms into both health and education, hitting quite serious opposition from the Parliamentary Labour Party in another place when they do so.
	It has done enormous damage too to the Chancellor himself. The one thing he did have was a reputation of being much less—and here I am extremely anxious to use parliamentary language—slippery than the Prime Minister. When one looked at the Chancellor, he was seen as a man who seemed to lack charisma and a sense of humour. He did not really have the same way with words as the Prime Minister, but he seemed at one stage to be more straightforward. I do not think that one can say that any more. His worst offence has been his cavalier treatment of the golden rule. I do not think he is really aware of the sheer derision and the desperation of financial commentators and economists and the lack of respect in which they now hold him for completely changing the rules that he set out originally about government borrowing and how he is going to invest. It makes Enron look like a pretty immaculate organisation, particularly in the way that off balance-sheet liabilities have been treated. If the Government find it necessary to renationalise Railtrack, it seems extraordinary that they will treat the liabilities that Railtrack then incurs as something that cannot be counted against the Government balance sheet.
	So much of the credibility that the Chancellor once had has now gone and the health of the economy has been dreadfully undermined. He inherited a fantastic legacy from the previous Conservative government, and we have seen some very respectable results in the economy, but that is now coming to an end. I have serious doubts about whether we are going to see the recovery that he is so confidently forecasting in his Pre-Budget Report.
	To go back to the question of productivity, health productivity in the NHS has dropped by 5 per cent and in education by 13 per cent. That goes quite a long way to explaining why productivity nationally has been dropping. We have dropped from 13th to 51st place in the World Economic Forum's regulation league table. In bureaucracy, we have gone from 11th to 26th. Business investment is at its lowest level since records began. The noble Lord, Lord Haskel, said that there was a social cost of doing nothing, as if the only way that you could solve a problem of a downturn in the economy is to throw money at public services. There is the alternative if you have not already thrown the money at public services of lowering people's taxes and stimulating demand in the private sector, which then contributes much more to the economy in the future. His is not the only possible solution to dealing with a depressed economy. You can allow people to keep more of their money than they might otherwise have done.
	We are seeing unemployment, which has been rising now for the past 10 months. I know that the employment levels are high as well. Many references have been made by my noble friends to Anatole Kaletsky. In one of his other articles, he said that we have been experiencing an almost neo-Keynesian consumer boom which had been based on cheap credit and people borrowing enormous sums of money. Inflation had been kept down simultaneously by cheap imports coming into this country. My noble friend Lord MacGregor referred to that. I think that this boom has come to an end. Personal borrowing is now very high. My noble friend Lord Northbrook has referred to the rate at which people are now very severely borrowed.
	We have also seen a rising housing market, which has made people feel better off. In anyone's language, that market is now static. There is some suggestion that it may have revived a bit, but where will it go? Will we see a great revival in the housing market with the return of enormous house price inflation, or will growth be pretty steady, as I suspect is more likely, for the next two or three years? It is difficult to see much further ahead. If, as has been mentioned, taxation is higher, disposable income is lower, personal debt is still high and house prices are not going up, then I do not think this consumer boom will come back in the way that it has in the past.
	Have we seen the best of import substitution of manufactured goods from China and India, which has kept down the prices of so much that we use? Perhaps that will not continue either. We will therefore see a lower pound, which will probably make imports more expensive if our interest rates stay at much the same level or lower than now. That will improve our export position but it will put some pressure on prices.
	There are two reasons why I have serious doubts about the basis of the Pre-Budget Report. The economy may grow at 2½ per cent—and most economists seem to say that as it has grown at much higher rates of 3 or 3½ per cent, it should not be too difficult to achieve that 2½ per cent grown—but we should not necessarily take that view and we may well see lower growth rates. We must also examine what the Chancellor says about expenditure, growth in which he hopes to pin at not more than 2 per cent per year. At the same time, however, the forecast of what will have to be spent on health, for example, is something like 4.4 per cent if all the demands of an ageing population and so forth are to be met. We are committed to a historically high overseas aid budget and accept that education will have to have an above average growth rate of, say, 2¼ per cent. Those are such gigantic lumps of the total expenditure budget that only about 0.8 per cent will be left for all other public expenditure programmes. No one can really believe that public expenditure in so many departments can be held at 0.8 per cent in real terms year after year.
	So I have enormous doubts about whether the situation really will move in the direction that people hope. The noble Lord, Lord Tomlinson, and indeed the Chancellor have made great reference to how good the figures and growth rates have been for the Government, but the noble Lord knows as well as I do that if you market a financial product, you must put a health warning on it which states that past performance is no indication of what might happen in future. That is true of the British economy today and we should not be in any way complacent that just because good things have happened in the past they will continue, because all the signs are that they will not.

Lord Haskel: My Lords, before the noble Lord sits down, perhaps I may respond to something he said. I was not referring to the steps needed for our own depressed economy; I was referring to the investment needed to cope with the dangers from the international economy. That was the point I was trying to make.

Lord Hamilton of Epsom: My Lords, I am glad that the noble Lord has intervened in that way. If he is saying that investment should be in the form of an enormously increased public sector, I do not agree. The investment should come from lowering taxes and increasing consumer demand so that the private sector reacts. We want a healthy private sector in this country, not a bloated public sector where, as I said, the productivity growth is nil if not going backwards. It is much too large relative to the size of the overall economy. Lower taxes do much more to stimulate an economy and create investment than throwing money at the public sector.

Lord Bhattacharyya: My Lords, I too thank the noble Lord, Lord McKenzie, for opening this timely and important debate. Much of it has centred on the Chancellor's highly predictable reduction in the growth forecast in the Pre-Budget Report. The sense of the debate has been quite miserable in the sense that it has all been gloom and doom. The fact is that we have had eight and a half years of sustained growth and the lowest unemployment record. By and large, productivity declined when the Conservatives were in power—that is, after the reduction in taxes. There is no guarantee whatever that if one reduces taxes, productivity will go up.
	The measurement of productivity is fraught at the best of times. Our profitability in this country is quite good and has remained good. Looking at the productivity of the public sector, do noble Lords really mean to say that the Chancellor should not have invested in that sector? When we came to power, it was in the pits. You had to go to hospital to die. There was nothing. Schools were in a miserable state, and universities and the whole education system were underfunded. So the fact that the Chancellor has invested in the public sector should be applauded and not even questioned. When the Conservatives were in power, taxes went down. Did productivity go up? No, it did not. Therefore there is no direct relationship between taxes and productivity in that sense.
	What is important in the public sector is the reform process. First, investment was needed. Investment does not produce an increase in productivity straight away. Staff have to be trained and recruited and buildings have to be built, and it takes at least eight to 10 years before one can see the results of that investment in terms of productivity. It has just about started to happen. Of course, in the early days of investment there is sometimes a perception that the resources are being misused because citizens do not see the results of the investment straightaway. But investment in universities, schools and hospitals has given enormous benefits. The fact that people even question whether there should be public sector investment in this country is not the sign of a developed nation. That is what one talks about in underdeveloped countries.
	Much is said about statistics, but statistics are fraught at the best of times. So I shall concentrate on the promotion of research and development and its importance to the economy as set out in the Budget. The Chancellor's ambition is to enhance science and innovation through the public and private sectors working together to make the UK one of the leading countries in the world for turning science into business innovation. That is an ambition which I am sure is shared by everyone in this House.
	There is no doubt that nations that are at the forefront of research and innovation will be best placed to move into the high value-added technology-driven areas which will provide the new sources of economic growth. I go to China and India every month and I see the developments taking place there. The first stage of development was when we moved all our low-cost call centres and so on offshore. The second stage came when we started having our manufacturing sector there. Businesses do not go there just because we are uncompetitive or because we have low productivity. All these nations have to develop themselves and businesses go there for only one reason—the market.
	How do we counteract a growth rate of 7 or 8 per cent in India and 8 or 9 per cent in China? The only way that we can do so is, first, by funding R&D, by ensuring that we can capitalise on that R&D and by ensuring that we have businesses with high value-added technology. Here I echo what my noble friend Lord Tomlinson said about our skill base having to be right so that we can exploit R&D. There is no point in spending a lot of money on R&D in this country unless we are able to exploit it.
	The second part is also very important. The development of R&D in this country is not the only reason why we should have skilled people. We need skilled people so that they are able to exploit R&D anywhere in the world. Every country is developing the sort of products and processes that we should be able to exploit. That requires a very sound skill base in this country, the ability to develop it and to continuously enhance our knowledge base.
	There is no doubt that those at the forefront of research and innovation will be best placed to move into higher added-value technology. In 2004, the Government set out their aspirations for R&D in the science and innovation investment framework, setting an ambitious R&D target for the UK of 2.5 per cent of GDP by 2014, from its current level of 1.9 per cent. Would anybody disagree with that? That is an achievable path, and we should achieve it. It is a tough challenge, but essential if the UK is going to hold its own among its competitors. In 2004, the Chancellor put his money where his mouth is with public spending, with £1 billion in extra funding for the UK science base by 2008. Of course you can reduce taxes, but that does not raise our intellectual base. In the end, we will become an offshore island, for everybody else to come here and launder money.
	The framework also set out a number of measures to promote knowledge transfer into the economy and support for university research. It is those I seek to address today. I am delighted that, to strengthen the partnership between government, business, universities and other R&D stakeholders, the Government are to establish a regular forum between the Chancellor, the Secretary of State for Trade and Industry and the Minister for Science and Innovation with business leaders and scientists. For the first time, we have had different departments getting together to solve this problem. I am sure that Sir Tom McKillop of AstraZeneca will make an admirable chair of this group.
	The group has the goal of improving the UK's R&D and innovation performance; not the base, but the performance—that is, productivity. As part of the process, the Government will establish an updated assessment of UK business R&D and innovation in the 2006 Budget, including an analysis across sectors and a comparison of global trends. Productivity in science and technology is difficult to measure. It is fraught. When you analyse it, as the ILO and many other centres have tried to do, it is very difficult. Where do you start? Where do you end? For the first time, we are saying, "Let us have a proper analysis of our productivity in science and technology and see how it compares with others".
	Incidentally, from my personal experience of visiting firms and universities around the world, I do not believe that the UK's R&D performance is as lamentable as many commentators make out. Huge numbers of people come to this country just for our R&D. In terms of attracting students, our productivity in the higher education sector is so high because we do good R&D—hence they come here to study. At the same time, I agree with the noble Lord, Lord Tomlinson, that we have to make it easier for them to come and work, because they come with a proper skill base.
	Where research ends and development starts and where research leads to innovation are very difficult to judge, so some good quality data would be most welcome. The fuzziness can be seen in the way the Government have reacted to the recommendations of Sir George Cox's review of creativity in business, accepting some of them but wishing to reconsider others.
	The vehicle that the Treasury has put in place to encourage greater R&D in the private sector is, of course, the R&D tax credit. Take-up of the R&D tax credit has gone up, with 95 per cent of eligible SMEs making a claim in 2002–03. The credit has already provided over £600 million in support for R&D in SMEs since its inception. That is no mean figure. How much of it is totally new R&D and how much is done just because of tax credits is very difficult to judge, but I think the new committee will look at that.
	Importantly, the Government have also set up regional development agencies. During the past few years, the Advantage West Midlands agency, of whose board I used to be a member, has helped many small and medium-sized companies out of its total science and innovation budget of only £15 million. The figures are very impressive. Of the technology-based companies, Accelerate Technology Transfer, which helps companies acquire specialist technology, has assisted 75 companies per year. Innovation Actions, which looks at funding potentially high-risk projects that would normally fall short of standard funding criteria, has helped 83 companies. Innovation Networks gives companies the opportunity to pool expertise, experience and capital in a bid to develop ideas, products and services, with 117 companies assisted over its lifetime. Mercia Spinner, which specialises in the commercialisation of ideas from higher education, has assisted 168 companies so far. Advantage West Midlands, the regional development agency, with small sums of money has been able to change the mindset, environment and framework of the way in which the Midlands works. It has taken some time, but in the history of how we commercialise R&D, this is fabulous. So the Chancellor must be congratulated on what he is doing in science and technology.

Lord Newby: My Lords, over the past eight years we have become used to the Chancellor triumphantly proclaiming the superiority of the Treasury over all outside forecasters and the superior authority of his management of the economy over all our principal competitors. If there were ever any justification for such an approach, it now looks like hubris. On growth, as we have been discussing, the forecast of 3 per cent plus has had to be halved by the Chancellor from his confident predictions of the spring.
	I fully accept that a growth rate of 1.75 per cent is not a national disaster—far from it—and I respect the fact that we have had a number of years of uninterrupted growth from which the economy has greatly benefited. My principal criticisms of the Chancellor in respect of the revised growth rate and the way he dealt with it was that at first he pretended it was going to be 3 per cent months after it was clear that it was not and then he sought to bury the revision in his Pre-Budget Report Statement. When I first read the Statement, I missed it completely because far from him explaining the major change, it was locked in the middle of three paragraphs extolling the fact that the inflation rate for the past eight years had been consistently low. He can take some credit for that achievement, having taken a decision eight years ago, but since then he can take relatively little credit for it as others have taken the decisions. We must also, even within weeks of the Pre-Budget Report, be concerned about the 1.75 per cent figure. We have since seen manufacturing output figures which suggest that it is not growing as expected and is doing badly. Indeed, JP Morgan is already downgrading its growth forecast to 1.6 per cent, and so 1.75 may be excessive.
	The more substantial problems which the Chancellor will have as a result of the downgrading of the growth forecast have to do with the much-vaunted fiscal rules. On the golden rule, there has been much discussion today of the way in which the Treasury was able to redefine the cycle to help the Government. The details of how to measure the economic cycle and therefore judge whether the golden rule is being kept are extremely arcane. Sad person that I am, like the noble Lord, Lord Patten, I read the audit of assumptions of the 2005 Pre-Budget Report. I disagree with him on one point; that when the Comptroller and Auditor General said that there was no ideal way to define the cycle, he was merely stating the obvious. Everybody takes a raft of measures, but they take slightly different measures and different weights of measures. Given the way we currently run our affairs, it is very difficult to end up with a measure of the cycle with which everybody is likely to agree. I agreed with his conclusions, that there were great uncertainties in determining when the economy is on trend, however one does the sums, but that the Treasury should look at a number of different techniques to determine the output gap, as the background to determining whether that is the case, and that it should discuss them with relevant external organisations. Can the Minister tell the House whether the Chancellor plans to accept those NAO recommendations?
	The report also demonstrates that the National Audit Office has the capacity to audit all aspects of the fiscal rules on a regular basis. We strongly recommend that. It is ridiculous that it has been asked to do a one-off piece of work to assess the cycle but has not been asked to assess whether the golden rule has been met. In recent months, the Chancellor has helpfully given greater independence to the Office for National Statistics. In view of this conversion to the principle of independence, we ask him to increase the credibility of the Treasury's management of fiscal policy by requiring the NAO to report to Parliament at the time of the Budget and of the Pre-Budget Report giving its projection of the fiscal position and, where necessary, the size of the corrective action needed to meet the fiscal rules.
	However, even with an independent audit, I begin to have doubts about the usefulness of the golden rule in its current guise. The economic cycle is now projected to last 12 years; it seems to me that that is such a long period—less a cycle, more a stretched limo, as Robert Chote of the IFS described it—that its practical value must be questioned. That period could easily last through four Parliaments. Would an incoming government, 10 years into a cycle, feel constrained to base their tax and spend priorities on decisions taken by another government, possibly of a different political colour, 10 years earlier? Of course they would not. Therefore, the practical value of the golden rule must be questioned.
	Just as the golden rule looks tarnished, questions are beginning to be raised about the Chancellor's second domestic rule, the sustainable investment rule that requires net public sector debt to be less than 40 per cent. Although that level has not yet been attained, a number of organisations—the IFS, Morgan Stanley and others—are suggesting that, given the revenue projections going forward, it is now looking vulnerable. One only hopes that the Chancellor is not, even as we speak, thinking of helpful ways in which it might be redefined.
	When we come to the state of the economy as a whole, the Chancellor has an unappealing habit of blaming others for his own failures. He seems completely unwilling to accept that the principal reasons for the current slow-down are home grown. For example, he does not accept that, uniquely among our principal competitors, an increase in oil prices has an immediately positive impact on UK GDP. He does not seem to accept that, even leaving aside the roaring growth in China and India. Many of our other principal competitors—the US, France and even Japan—are now expected to have higher growth than the UK in 2005.
	He does not seem to accept that the biggest single reason for the slow-down in growth overall is the slow-down in private consumption and that the principal reasons for that are that personal debt has now reached such a level that consumers are holding back and that personal tax rises have impacted on household expenditure, as the Governor of the Bank of England has stated. He does not seem to accept that personal debt levels have grown at an unsustainable rate in recent years and that people are now spending record levels of their income on repaying debt, which is why we are now seeing record levels of individual insolvencies and why mortgage repossession levels are at their highest levels for more than a decade.
	Equally, the Chancellor does not seem to accept that a principal domestic cause of the growth slow-down is the fall in business investment, about which a number of noble Lords have spoken. In turn, a part of that at least has to do with increased tax and an increased regulatory burden on business. He does not yet, eight years into his chancellorship, seem to have realised that wheezes—ill thought through, not consulted about and of which SIPPS is just the latest of an inglorious number—do not work. Nor does he seem to realise that to scrap something like the operating and financial review, on which there has been consultation over years and for which companies have prepared, without consulting even the department responsible in order to get a quick headline at a CBI conference simply is not the way to give business confidence in its planning.
	The Chancellor does not seem to realise that he is now precariously dependent on corporation tax and stamp duty for his revenue and that the combined slow-down in personal consumption and industrial investment puts both those revenue sources at risk, and, therefore, the public finances going forward are not necessarily as robust as they appear in the Pre-Budget Report.
	This Pre-Budget Report marks the end of the purple period of this Chancellor's stewardship of the economy. During the remainder of his tenure, his challenge is to restore the balance and momentum to the British economy and credibility to his forecasts. This Pre-Budget Report gives us little faith that he will do either.

Baroness Noakes: My Lords, we have had a tale of two economies this evening. One owes much to the imagination of the Chancellor. We heard that from the Minister and, to some extent although not unanimously, from the Benches behind him. On the other hand, the view put forward by these Benches and, indeed, by the Liberal Democrat Benches, is a realistic view of the economy. The noble Lord, Lord Haskel, invited us, in the spirit of Christmas, to agree on the need to build a fairer society. Of course we agree on the need to build a fairer society. But I say to him that there has to be a "but". That but has to be that the economy can afford to build that fairer society. What we now see are the cracks starting to appear in the new Labour arithmetic in making progress towards what I know the noble Lord desires. Maybe this way of doing it is not the right way to build a fairer society.
	I know that the Minister is an intellectually honest man, so I fully expect that when he winds up in a few minutes he will reflect the realistic view of the world, rather than the fairy story he was required to read out at the beginning.
	The Minister and I have one thing in common: we are both chartered accountants. That means that we were trained to spot dodgy accounting. Given the professional rules that bind both of us, I know that he will join me in condemning any attempt to cook the books. The Pre-Budget Report contains an example of cooking the books, of which Enron would have been proud. I refer of course to the golden rule, which a number of noble Lords have already referred to, with the Chancellor having extended the time-frame first to make it start earlier and then to make it start later. These changes were made for one reason only: to allow the Chancellor to brag that he has met his rule.
	Like the noble Lord, Lord Newby, I too have read the National Audit Office report. I do not like to think of myself as sad, and I am sure that my noble friend Lord Patten does not want to think of himself as sad. One item it identified in paragraphs 44 and 49 is that the Treasury could supply no analysis beyond that in the Pre-Budget Report and the Budget documents—that is, the analysis about the turning points in the economy. Is that not incredible? Does the Treasury not bother to analyse issues any more, or is the truth that the Chancellor is driven not by rigorous and prudent analysis, as he used to claim, but simply by his personal desire to rewrite history? We know that the Chancellor already has form because earlier he changed the calculation from absolute amounts to percentages in another vain attempt to prove that he was winning. The golden rule is now rubbish. It can be restored to credibility only if he passes its calculation to a wholly independent body, as we and the Liberal Democrats have been arguing for some time.
	Many noble Lords have referred to the fact that the Chancellor was forced to downgrade his 2005 growth forecast for the second time in three months. Although neither the Chancellor nor the Minister have mentioned it, our current growth rate is at the bottom end of the EU, as my noble friend Lord Northbrook noted, and below the world average.
	Did the Chancellor say sorry for getting his sums wrong? No, because the Chancellor does not do sorry. He was like a little boy who got caught telling fibs. He said, "Those naughty oil prices did it", or, "Those wicked Europeans with their low economic growth did it". Those excuses simply do not stack up. The PBR has again increased the taxation burden. The overall burden is now set to rise to a level last seen in the early 1980s, before my noble friends Lord Howe and Lord Lawson reformed our economy.
	That is where we find the Chancellor at his most short term. He taxes families and then is surprised when they stop spending, putting pressure on economic growth which, in turn, leads to lower corporate profits and lower corporate taxes. He then looks around for some corporate fall guys. He thinks that the oil companies have a bit of spare cash by virtue of recent oil price rises, so he stages a smash and grab raid to the tune of more than £2 billion a year. Did he stop to think what would happen to exploration in the North Sea and to our country's self-sufficiency in oil? Of course not.
	As my noble friend Lord Northbrook said, the Chancellor made another onslaught on small companies. I am losing count of the number of times that the Chancellor has fiddled with the small company tax regime. He seems to think that everyone who plans his tax affairs to pay the minimum allowed by law—a principle well established in our legal system—is just a tax avoider who should be attacked with another few hundred pages of the Finance Bill. Will the Chancellor ever learn that complexity and tinkering are not good foundations for a tax system? I doubt it.
	The Chancellor is borrowing more than ever: £151 billion over the next five years; £17 billion more than forecast in the last Budget. That is because tax revenues cannot keep pace with the dreadful appetite for public expenditure that the Chancellor has unleashed. Let me be clear, we are not against public expenditure, but we loathe public expenditure that is inefficient. The public hates it too. There is some bragging in the PBR about efficiency gains, especially in the NHS. Frankly, we do not believe it. All the evidence points to a massive loss of efficiency in the public sector since 1999. If the noble Lord, Lord Bhattachryya, thinks that that was a good investment, we beg to differ.
	Eight to 10 years is simply not an acceptable timescale overall for such investment; it is certainly not good enough in the private sector. The £900 million of deficits in the NHS this year tell their own story. Efficient organisations—the NHS is not an efficient organisation—do not lose financial control. There may well be some fancy efficiency calculations cooked up in the Treasury for the purpose of the PBR but, in the real world, we know that public sector inefficiency is one of the major problems both for the spending programme and for its impact on our national productivity growth.
	In 1998, the Chancellor said that productivity was a fundamental yardstick for the long-term economic health of the economy. Quite so. Our output per worker is now at the lowest level since 1991. I think that the noble Lord, Lord Tomlinson, agreed that productivity growth is now a weakness in the economy.
	We are unhappy about how the economy is being run. We have slipped down the league tables, as other noble Lords have said. We have a business sector weighed down by regulatory burdens. My noble friend Lord MacGregor referred to £40 billion a year. I say to the noble Lord, Lord Bhattacharyya, that you need an awful lot of research and development to make up for the value destruction going on corrosively in our economy. The Chancellor started to talk a good story on that but we do not have many concrete examples of what he has actually done, other than the knee-jerk reaction to abolish the OFR—although I personally agree with that, it was a pathetic little gesture at the time.
	To get a view of what the public finances really look like, we need to look not only at what the Chancellor tells us but also at what he does not tell us. Here we need to look at the borrowing that is off balance sheet. Take for example the private finance initiative, to which my noble friends Lord MacGregor and Lord Marlesford have referred. We are talking about probably another £45 billion of the capital element of PFI contracts to date, based on the figures that the Treasury has given. As my noble friend Lord Hamilton has said, the figures also exclude Network Rail's borrowing, which is set to rise to over £20 billion. If we include £45 billion for PFI and £20 billion for Network Rail, the Chancellor's sustainable investment rule of not exceeding 40 per cent of GDP is already a busted flush over the forecast period of the PBR. If the Chancellor added in the cost of meeting unfunded pension obligations, which are rising strongly, we would see debt rising to around 100 per cent of GDP.
	I have one specific question for the Minister, of which I have given him notice, concerning tax credits. We do not have time to go over the sorry story of the failed implementation of the Chancellor's pet scheme, but in the PBR he announced that the tax credit disregard would be raised from £2,500 to £25,000. Her Majesty's Revenue and Customs calculated that the £2,500 disregard cost about £800 million in 2003–04, so my question to the Minister is how much the increase to £25,000 will cost and how many families will be affected by it.
	Today's debate on the Pre-Budget Report is set in the context of our obligation to report on our finances to the EU. I have said on similar occasions that on these Benches we have no real interest in the EU's view of our economy; that is probably one area on which we and the Chancellor can agree. My noble friend Lord Marlesford raised a number of issues around the EU, particularly regulation flow and gold-plating. The examples that he gave us were very striking.
	I have two questions with a European angle for the Minister. The first relates to the Prime Minister's shameful cave-in at the weekend, which has been raised already. His noble friend Lady Amos in the Statement ducked the question of how much would be covered in each of the years covered by the PBR. I hope that the Minister will confirm what his right honourable friend the Foreign Secretary said last week: that the cost has not been included in the PBR arithmetic, so what we are looking at will be added, whatever problems we have already on display in the PBR.
	My second question with a European dimension is about group litigation orders. To what extent has the Treasury assumed in the PBR that tax revenues will be impacted by the result of group litigation orders? I refer not just to the Marks & Spencer case that we had this week but cases such as Cadbury Schweppes and various others that are still around. In passing, the Treasury has come close, at least, to abusing the Freedom of Information Act because it has been refusing to give any sensible information about the implications of group litigation orders to the magazine Accountancy Age. It clearly knows how much tax is at stake. That cannot affect the outcome of the cases that await decision, so we hope that the Minister will give those figures.
	We are invited to approve the Motion on the Order Paper. We can find little positive to say about the Chancellor's handling of the economy. The economy is not on its knees, but the Chancellor's policies are slowly but surely moving us there. I want to be able to tell Europe that we have a fantastic economy with world-beating economic growth, record productivity growth and public services that use every penny wisely. I very much regret that that is not the truth.

Lord McKenzie of Luton: My Lords, I start by thanking all noble Lords who have participated in the debate. It has been wide-ranging and by and large has been conducted in accordance with the season we are in. I am grateful for that. In the time available I shall try to answer as many of the questions put and points raised as possible.
	It is good news to hear from the noble Lord, Lord MacGregor, that British Sugar is about to start its investment to undertake production. I do not know if British Sugar is eligible for the new and enhanced capital allowances, but I hope that it is. The noble Lord also asked about the position of orchestras and national insurance contributions. I understand that discussions have taken place between the Association of British Orchestras, the Musicians' Union and the DCMS on the issue. It has arisen because back in 1998, at the request of the Musicians' Union, entertainers asked to be subject to national insurance as employees so that they could access the relevant benefits, although for tax purposes they were self-employed. Notwithstanding that, it seems that some orchestras have not been paying the insurance contributions. Obviously we are keen to preserve and enhance the tremendous work done by orchestras up and down the country. Further discussions will be necessary, but I understand that it is not something that was somehow retrospectively visited on orchestras. Perhaps we can go into this in more detail outside the debate.
	The issue of SIPPs was raised by a number of noble Lords. The problem with simplification is that people will seek to push against and cross any line drawn in the tax system. It is undoubtedly the case that the simplification which was intended right across the piece, a move that is still broadly accepted and supported, was in danger of giving rise to unintended consequences. It was said both in this House and, I believe, in the other place when questions were asked, that the Government would keep the position under review. The Government have concluded that unintended consequences would arise; those have now been prevented. I am pleased that the move has received support this evening.
	I shall not spend too much time going over the debate on the £5 billion on pension funds, tax credits and ACT. However, just to remind noble Lords, the Pensions Policy Institute calculated the figure to be a good deal less than £5 billion. One of the major problems faced by pension funds has arisen from a 1986 amendment, the 5 per cent surplus rule. That encouraged pension funds either to increase benefits or to take contribution holidays. That was done with perhaps a lack of appreciation of what the long-term investment returns would be and, indeed, what was happening demographically. People are living longer.
	A number of noble Lords asked about the fiscal rules and pointed out that the goalposts have been changed. I want to stress that what has changed are the data. If there were objective revisions to the data for the early years that led to a different conclusion, it was absolutely right to factor those in to the decision taken. Similarly, if growth is now lower than was expected, it follows that it will take longer to get back to trend growth than the end of the cycle. Noble Lords cannot have it both ways. What would have happened if the data change had led to a different conclusion, one that when implemented would have made it more difficult for the Government? I am not sure that noble Lords would be asking us to ignore the data.
	A number of noble Lords touched on the tax ratio. For 2005–06, tax and national insurance as a percentage of GDP is below that of the seven years of the previous Conservative government, and even looking at the end of the current projection it is below the peak years of the previous Conservative Government. The latest OECD data that we have for tax and national insurance as a percentage of GDP shows the UK to be below the EU 15, below OECD for Europe and OECD as a whole. We now have corporation tax rates, income tax rates and an effective capital gains tax rate which are lower significantly than we inherited from the previous government.
	My noble friend Lord Haskel commented on forecasting and the difficulties it entailed. I should point out—I think my noble friend acknowledged this—that the average absolute error on year-ahead autumn forecasts by this Government is 0.66 per cent; by the previous government it was 1.01 per cent; and by all governments since, I think, 1974, it was 0.85 per cent. Since 1997 the Treasury has outperformed the independent consensus in both current year and year ahead GDP growth forecasts.
	As to why the forecasts change, as is set out in the Pre-Budget Report, 0.5 per cent of the change is purely arithmetic because the ONS data revisions which took place in June of this year changed not the overall growth level for 2004 but the profile of it. So the latter part of that year was at a lower level, and that impacts directly on whatever the growth projectory of the current year would have been. My noble friend Lord Haskel is correct to mention the OECD and its favourable comment on the monetary and fiscal framework that we have in this country.
	He also touched upon the issue of public sector employees, both in terms of definition and what they do. Throughout the debate there has been a feeling that noble Lords opposite believe that somehow private employment was good and public employment was bad. That is demonstrably not the case.
	The noble Lord, Lord Northbrook, raised a number of points. He referred to a message from the Politburo. I am not sure whether or not that will help my street credibility but, on the forecasts, again the 0.5 per cent arithmetic adjustment related to 2004 and oil prices impacted on both demand at home and on demand in those countries to which we export—particularly those countries with which we have strong trading relationships. There was also a slower growth in earnings, which impacted a little bit and demonstrated the flexibility there is in the labour market.
	Reference was made to the increase in personal and consumer debt. I heard the Governor of the Bank of England refer to this when he was giving evidence to the Treasury Select Committee. I believe he said that at the macroeconomic level it was not a concern. Obviously at an individual household level and in individual personal circumstances it can be, but its impact on the macro-economy was not, in his view, significant.
	Is borrowing out of control? No, it is not. The golden rule has been met. In relation to borrowing, if you look at the chart in the report you will see that it is now below 40 per cent of public sector net debt. In 1979–80 it was 43.9 per cent, then 46 per cent, 46 per cent, 45 per cent, 45 per cent, 45 per cent. For many years under a Conservative administration, debt levels were significantly above what they are now.
	In relation to the changes to small business—the noble Baroness, Lady Noakes, raised this point—the lowest starting rate is lower, certainly, than the rate we inherited. Again the problem is that when the Government try to put an incentive in place there are unintended consequences of people seeking to abuse the system. There is no doubt that, rather than use the opportunity to reinvest in small companies, people were using it to incorporate just to get tax and national insurance benefits.
	Reference was made to the planning gain supplement. I do not have time to go into it in great detail but it is intended to be at a modest level. In part it would substitute for the Section 106 agreements that happen at the moment. But if you want some justification for it, it would all be ploughed back into infrastructure, particularly by local authorities. The figures show that agricultural land value is just under £10,000 a hectare. In England, planning permission for residential purposes would increase the value of a hectare of land to something like £2.6 million, a huge increase. It is not unreasonable that a modest amount of that is used appropriately to provide the infrastructure, which will help the development come forward.
	The noble Lord, Lord Marlesford, referred to the forecasting error. I point again to the impact of the June ONS data revisions for 2004. He talked about the impact of the US economy. Obviously, a pick-up in growth in Europe would be welcome because, as the economy moves forward, consumer spending is projected to increase at a lower rate than the growth of the economy as a whole. Investment and exports will grow more strongly to help that growth go forward.
	On public expenditure, a major spending review planned for 2007 will look fundamentally at all the issues that face us over the next 10 years and will be based on zero-based budgeting. That is a sensible and practical way to make sure we are getting value for money.
	On PFI deals and the economy, I think it is right that what does and does not go on the balance sheet is determined not by government but independently. At the moment, some of the on-balance-sheet stuff does not feature in the net debt figures. There have been problems in getting the data; it is a question of analysing what that effectively means. There is a report to the Select Committee on the Treasury, which I believe is hoping to come forward with some data in March of next year. If I am wrong, I will write to noble Lords.
	The noble Lord, Lord Marlesford, referred to public sector pensions. There is agreement that for new entrants, 65 will be the pension age. The proposals deliver the £13 billion in savings that the Treasury was looking for. Obviously there will be sector-by-sector discussions on how that will be implemented and how current members relate to it. On the pension fund issue and its impact on private sectors, I have already referred to the 1986 changes and what that led to.
	On regulatory reform, there is a good deal going on in this respect, all of which is set out in the Pre-Budget Report. The Government have taken a risk-based approach to the implementation of the EU accounts modernisation directive. We have abolished the uprate in the financial review. A package of administrative simplifications in the tax system worth £300 million per annum to business is included. Following last year's review of the Financial Services and Markets Act 2000, and a 10-point action plan of reforms to wholesale and retail financial markets, reflecting the greatest concerns that business has raised, the Government have asked Neil Davidson, the former Solicitor-General for Scotland, who worked with the Better Regulation Commission, to audit the stock of existing legislation to identify areas that might be gold-plated. To suggest that the Government are not doing anything or that somehow this cannot be changed, I do not believe is right.
	My noble friend Lord Tomlinson quite rightly praised the great economic progress that has been made under this Government and the importance of economic stability. He reminded us what economic failure was about—two recessions, an unemployment rate of 3 million and record levels of repossessions. My noble friend talked about productivity; he is right that there are challenges, which are addressed in the Pre-Budget Report. We should put this in context, which my noble friend recognised. We have more than closed the gap on Germany since 1997 in output per worker. We have increased the favourable gap with Japan at marginal improvements against the USA, and have halved the gap with France. So progress is being made.
	The historical comparison of manufacturing productivity shows that between 1997 and 2004, it averaged 4.1 per cent; between 1980 and 1996, it averaged 3.5 per cent.
	My noble friend asked whether current expenditure is being classified as investment. The answer is no. Public sector net investment is defined, as it always has been, as relating to gross fixed capital formation and it does not include current expenditure. More public sector net investment is taking place. It is three times higher as a share of the economy than it was in 1997–98, and investment is at its highest level for 26 years. My noble friend referred to our being a leading educational exporter. I confirm that the Government see that as being a key commitment which they have to take forward.
	The noble Lord, Lord Patten, referred to what had happened in Europe. If we are assessing the costs involved in that, as was touched on in the Statement, we should also be assessing the benefits, short and long term, which come from enlargement in particular. He asked me whether the Chancellor agreed what happened in advance. Noble Lords will understand that the Chancellor does not check with me on everything that he does, but I am sure that he has been in touch throughout this process. The noble Lord also asked when the figures would be updated. The public finances forecast will be updated as usual at the Budget. That will reflect the deal that was reached at the weekend. The forecast is based on cautious assumptions. The Government maintain a reserve and an AME margin.
	The noble Lord said that governments do not build anything. I do not agree with that. Governments alone do not, but one of the key features of this Government's handling of the economy is that we have put in place a framework which has created stability and has had direct impacts on levels of interest rates and investment. It has created a backdrop for industry. My noble friend Lord Bhattacharyya asked about research and development and spoke about the importance of partnerships. To suggest that governments do nothing other than collect tax revenues and waste the money is not a fair representation.
	The noble Lord touched on the issue of the moral basis for public expenditure. That is an interesting point. Throughout the report one finds references to fairness, life chances and where funding is applied. A moral basis is implicit, but it could be made more explicit. That is a good point.
	The noble Lord talked about the excellent Tory legacy, as did others, but one wonders what would have happened if the same oil shock as took place this year had happened under the previous Conservative government, particularly with a simultaneous slowdown in house prices. What on earth would have happened under their management?
	I refer noble Lords to periods of economic slow-down. In the early 1980s, base rates were 16 per cent; in the early 1990s, they were 14.9 per cent; currently, they are 4.5 per cent. Unemployment in the early 1980s was 11.9 per cent; in the early 1990s, it was 10.5 per cent; now it is 4.7 per cent. Mortgage interest rates in the early 1980s were 14.3 per cent; in the early 1990s, they were 15.3 per cent; now they are 5.2 per cent.
	The noble Lord, Lord Hamilton, asked why we ever conceived that investments such as property and fine wine should be held in pension schemes. Most pension schemes are able to invest in those assets currently. Some 15 million members of pension schemes can invest in them. The particular concern in this case was self-directed pension schemes, where abuse could have taken place.
	The noble Lord referred to the fact that money has been poured into health and education. Of course, there had been years of underfunding. If one looks at outcomes, 330,000 fewer patients are waiting for treatment. More than 90 per cent of those attending A&E are now being seen within four hours; 99 per cent of people with suspected cancers are now being seen by a specialist within two weeks of an urgent GP referral. There has been an improvement and I think that the public, by the way they vote, recognise that. I think he said that past performance should not be taken as an indication of what may happen in the future. I wonder whether that is the Conservative Party's new economic slogan.
	My noble friend Lord Bhattacharyya referred to the importance of investment and taking a long-term view, and displayed his considerable expertise on the significance of science, the challenges of China and India and the need for us as a country to go up the value-added chain. I agree with all that. He talked about the need for partnership between government, universities and business; that seems absolutely right, and it is something that this Government are committed to.
	The noble Lord, Lord Newby, talked about 1.75 per cent growth not being a national disaster, and that is right. In the current year we are growing faster than Euro-land—Germany, France and Italy. He referred to difficulties with manufacturing, but manufacturing investment rose by 2.9 per cent in 2005, quarter two; annual growth in manufacturing investment has remained positive for five consecutive quarters; manufacture and export volumes rose 9.5 per cent in three months to September; manufacturing profitability was 7 per cent in 2004, up from 6.9 per cent in 2003.
	On determining the cycle, I would say that the methodology of the Treasury has not changed—it was the data. Either you follow the data or you do not, and if you do not, it is then that you cook the books. Why have a cycle at all? Well, if you do not have a cycle and do not seek to distinguish those impacts on the economy that are cyclical, you could make the wrong decisions about investment and tax. I see no basis for the suggestion that somehow the sustainable investment rule was not going to be complied with; we are confident that it will be.
	On the issue of personal tax rates, I know that the Governor of the Bank of England has touched on it, but no policy changes have been made by the previous two governments that impact on that. However, there are things like fiscal drift that impact on those things, and current data have been affected or skewed by financial services at the higher rate of the income scale, which has an impact on the net tax position.
	We were asked whether we would accept NAO recommendations and whether the NAO would audit all aspects of fiscal rules. The Treasury already looks at a wide range of indicators when coming to a conclusion at the end of the economic cycle, including the results of other methods. The NAO audits 12 key assumptions behind fiscal forecasts, audits the Treasury's chain growth assumption and will audit the end of cycle. The golden rule is assessed by looking at average current surplus over the cycle; statistics on current surplus are produced by the independent Office for National Statistics.
	I am already over time, so noble Lords must forgive me if I do not go into the subject of business investment and some of the very positive data in relation to that. The noble Baroness, Lady Noakes, asked whether we would condemn any attempt to cook the books. Indeed, I do; but I say again that if the data have changed, you have to follow where that data lead you. She referred to the issue of fairness and asked whether we could afford to have an economy that was fair; I believe that we can and we are. Since 1997–98, households on average are £950 better off under this Government, while families with children are £1,500 better off and pensioner households are £1,350 a year better off in real terms. The poorest fifth of pensioner households will be £2,050 better off under this Government.
	There was a suggestion that there had been an attack on oil companies, but those companies, with the unexpected sustained increase in oil prices are making returns of something like 40 per cent on capital, and it does not seem unreasonable in those circumstances to have some sharing of that. Research shows that new developments and exploration is impacted on as much by oil prices as by particular tax regimes.
	We dealt with the small companies issue and productivity matters. A specific question was raised about tax credits, and the particular component of raising the disregard from £2,500 to £25,000. I regret that the cost of individual elements of the package cannot be separated from one another, as there are other important interactions between them. That means that there is much less certainty over the costs attributable to individual elements of the package than for the package as a whole. However, based on the analysis over the first two years of the system, something like 600,000 families per year stand to benefit from the increase in the disregard.
	I have dealt already with the question of the EU settlement on the Pre-Budget Report, and I note that noble Lords on the Opposition Benches are not interested in the EU's view on the UK economy. I would just say that it is under legislation of their government that we are making this report. Perhaps I may write to the noble Baroness on the issues of group litigation and tax revenues.
	We have covered a lot of ground tonight. I apologise for running over time, but having taken long-term decisions to achieve a sustained, low-inflation economic stability, we are well-placed to face up to the global challenges of the 21st-century economy. Against this background, I commend this Motion to the House.

On Question, Motion agreed to.

Royal Assent

Lord Geddes: My Lords, I have to notify the House, in accordance with the Royal Assent Act 1967, that the Queen has signified her Royal Assent to the following Acts:
	Consolidated Fund Act,
	Regulation of Financial Services (Land Transactions) Act.

House adjourned at five minutes before ten o'clock.